- AUD/USD recovered from early losses and traded near 0.6590 during Monday’s European session.
- The US Dollar (USD) showed signs of exhaustion after a three-day rally, helping the Australian Dollar (AUD) regain strength.
- Traders are now focused on Fed Chair Jerome Powell’s speech on Tuesday for new guidance on the US monetary policy outlook.
🇺🇸 US Dollar Weakens Slightly
- The US Dollar Index (DXY) is marginally lower, trading around 97.55.
- The Greenback had been strong after last week’s Fed rate cut of 25 basis points to the 4.00%–4.25% range.
- The Fed also signaled two more rate cuts before the end of the year.
- However, questions remain about whether the Fed will keep cutting rates while inflation is still above the 2% target.
🇦🇺 Australia CPI Data in Focus
- The next major event for AUD will be the Australian Monthly CPI release for August, due on Wednesday.
- Inflation is expected to rise at an annual pace of 2.8%.
- Stronger inflation could reduce the chances of the Reserve Bank of Australia (RBA) cutting interest rates again soon.
💬 US Dollar FAQs (Simplified)
What is the US Dollar (USD)?
- The official currency of the United States.
- The most traded currency globally, involved in ~88% of forex transactions.
- Became the world’s reserve currency after WWII.
- No longer backed by gold since 1971 (end of the Bretton Woods system).
How does the Federal Reserve impact the USD?
- The Fed sets interest rates to control inflation and support employment.
- Higher rates = Stronger USD, as they attract foreign investment.
- Lower rates = Weaker USD, as returns on USD-denominated assets fall.
What is Quantitative Easing (QE)?
- When the Fed injects liquidity by buying bonds and printing money.
- Used during crises like 2008 to support credit markets.
- Typically weakens the USD due to increased money supply.
What is Quantitative Tightening (QT)?
- The Fed reduces bond purchases or lets them mature without reinvestment.
- Shrinks money supply, and is usually positive for the USD.