On Monday, the Australian dollar (AUD) surged by 0.74% and settled above the critical 0.65500 level as investors continued to close their bullish bets on the U.S. dollar, believing the Federal Reserve (Fed) has finished raising its base rate.
Possible effects for traders
AUDUSD has risen by 3% over the past six trading sessions as the combination of positive factors pushed the currency toward a four-month high. Firstly, the market doesn’t expect more rate hikes from the Fed as recent U.S. economic data showed the economy and inflation are slowing. Secondly, there are reports that China’s central bank is considering launching a stimulus program to support the economy. Bloomberg reported that Chinese regulators were drafting a list of 50 real estate developers eligible for a range of funding. China is a key importer of Australian goods, and any upbeat economic news tends to positively impact the AUD exchange rate. Finally, the Reserve Bank of Australia (RBA) has recently published the minutes from its previous meeting, which clearly showed that the officials’ sentiment remains rather hawkish. The protocols stated that ‘the members agreed there was a risk of inflation expectations increasing if the Board left the cash rate unchanged at this meeting.’
AUDUSD continued to rise strongly in the Asian and early European trading sessions after hawkish RBA minutes. AUDUSD may experience extra volatility today due to the FOMC minutes at 7 p.m. UTC. Now, the market seems to believe that the U.S. inflation has been beaten, and the regulator may turn dovish. Therefore, AUUDSD may fall sharply if the minutes show that the Fed is still considering more rate hikes.
