- AUD / USD oscillates around 0.6420 while the US dollar has trouble extending its advantage despite the Fed which does no rush to interest rate drops.
- Fed Powell warns that the risks for higher inflation and unemployment have increased.
- Investors expect US-Chinese trade discussions in Switzerland on Saturday.
The Aud / USD pair Exchanges flat around 0.6420 during North American negotiation hours on Thursday. The Australian pair struggles for management, while the US dollar (USD) abandons initial gains.
The US dollar index (DXY) has increased to almost 100.20 earlier during the day, on signals of the Federal reserve (Fed) that the adjustments of monetary policy are not appropriate in the midst of uncertainty UNITED STATES (United States) Economic prospects under the supervision of President Donald Trump. However, the USD index flattened around 99.90 at the time of the press.
The Fed directives that there is no precipitation for interest rate reductions came after the central bank left them stable in a range of 4.25% to 4.50% for the third consecutive meeting.
The president of the Fed, Jerome Powell, warned that “the risks to inflation and unemployment have risen upwards”. Powell has said that so far prices are “much greater than expected” and that we will see “higher inflation and lower job” if a significant increase in prices as announced was “sustained”.
Meanwhile, investors are looking for trade discussions between the United States and China, which is scheduled for Switzerland on Saturday. The meeting of the American secretary of the Treasury Scott Bessent and the commercial representative Jamieson Greer with their Chinese counterparts aim to defuse the trade war, and not to negotiate a trade agreement. The tariffs and counter-tariffs imposed by the two nations on each other are very high, and a commercial agreement cannot be initiated without lowering them.
Any positive result of American-Chinese trade negotiations will be favorable for the United States and the Australian dollar (AUD). Since Australia is the main trading partner in Beijing, an improvement in economic China prospects Will strengthen the Australian dollar.
US dollar FAQ
The US dollar (USD) is the official currency of the United States of America and the “de facto” currency of a large number of other countries where it is in circulation alongside local tickets. It is the most negotiated currency in the world, representing more than 88% of all global turnover, an average of 6.6 billions of dollars of transactions per day, according to data from 2022. After the Second World War, the USD took over from the British book as a global reserve currency. For most of its history, the US dollar was supported by gold, until the Bretton Woods agreement in 1971 when the Order stallion left.
The single most important factor on the value of the US dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to reach price stability (controlling inflation) and promoting full employment. Its main tool to achieve these two objectives is to adjust interest rates. When prices are increasing too quickly and inflation is greater than the 2% target of the Fed, the Fed will increase rates, which helps the USD value. When inflation falls below 2% or the unemployment rate is too high, the Fed can reduce interest rates, which weighs on the greenback.
In extreme situations, the federal reserve can also print more dollars and promulgate a quantitative relaxation (QE). QE is the process by which the Fed considerably increases the credit flow in a blocked financial system. This is a non -standard political measure used when credit has dried up because the banks will not lend themselves (by default of the fear of the counterpart). This is a last appeal when the simple drop in interest rates is unlikely to achieve the necessary result. It was Fed's weapon of choice to combat the credit crisis that occurred during the great financial crisis in 2008. It implies the Fed Print more dollars and use them to buy US state bonds mainly from financial institutions. QE usually leads to a lower US dollar.
The quantitative tightening (QT) is the opposite process by which the federal reserve ceases to buy obligations from financial institutions and does not reinvest the principal of the obligations it holds in new purchases. It is generally positive for the US dollar.
