- Aussie edges up 0.33%, consolidating around 0.6200.
- Markets digest US PCE data for policy cues.
- Fed is seen holding rates steady in early 2025.
The Australian Dollar consolidates around 0.6200 on Friday as traders digest November’s US Personal Consumption Expenditures (PCE) inflation data. With the Federal Reserve (Fed) expected to keep interest rates steady at the first 2025 policy meeting, investors also await next week’s Reserve Bank of Australia (RBA) minutes for insight into potential rate moves.
Soft US PCE figures are tempering the Greenback’s strength, offering modest support to the Aussie’s nascent rebound.
Daily digest market movers: Aussie sees mild rebound as markets digest soft PCE data
- The US Dollar Index eased after hitting a two-year high at 108.50, as PCE data undercut inflation expectations.
- The US November PCE monthly headline reading came in at 0.1%, down from 0.2%.
- The yearly measure rose at 2.4% YoY, slightly below the 2.5% forecast.
- Core PCE slipped to 0.1% monthly from 0.3%, with the annual figure steady at 2.8% and under the 2.9% estimate.
- RBA minutes due Tuesday may shed light on future policy moves after Governor Michele Bullock expressed confidence in easing wage and demand pressures.
- China’s sluggish growth outlook and potential US tariffs still cap Aussie upside, though today’s softer US data offers a brief reprieve.
AUD/USD technical outlook: Aussie finds footing as oversold signals fade
The AUD/USD is extending its gains for a second consecutive day. The Relative Strength Index (RSI) stands near 33, rebounding from oversold territory, while the Moving Average Convergence Divergence (MACD) histogram prints flat red bars.
Although momentum remains fragile, the pair’s modest recovery and improving technical signals suggest it may stabilize further if incoming data continues to temper the US Dollar’s strength.
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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