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AUD/USD - Fed more Aggressive than RBA
04.07.2022

The price of the AUD/USD continues to remain under pressure as the US Dollar firmly remains in the driving seat. The Australian Dollar has come under pressure from multiple factors including the fear that a recession will significantly lower the demand for commodities, which Australia’s economy is significantly reliant on. Also, the currency has been pressured by lockdowns in China as well as sanctions against Russia.

The price of the exchange rate has been significantly declining since the 3rd of June with the price currently being 6.10% lower. Since the 3rd of June, the Australian Dollar has managed to form only one retracement but has lost momentum within 2 trading days. The price has currently managed to break below the previous price wave and the price is currently hovering at the previous price level which was formed on the 12th of May. Traders are currently evaluating whether the US Dollar is likely to break the support level and continue the downward trend.

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The price of the Australian Dollar is strongly related to commodities and is known as a commodity-based currency. Commodities make up 25% of Australia’s exports and the economy is strongly reliant on the commodity market. As the risks of a recession increase, the market fears that the commodity market will witness weaker demand.

Lower economic activity in the Asian markets is also resulting in lower demand for the Australian commodity market. In addition to this, China, which is one of the largest importers from Australia has lowered orders as they increase ties with Russia and the purchase of Russian fuel, which European consumers have refused.

According to economists, the new rate hikes by the Reserve Bank of Australia cannot strengthen the position of the AUD, as the US Federal Reserve is increasing rates at a faster pace. Also, the US Dollar may currently be used as a safe haven currency to a high level. The Australian regulator is expected to raise the rate by 25–50 points this month and the US regulator by 50 or possibly even 75 basis points.

In the US the market is watching the rise in inflation and the decisions of the US Federal Reserve. Yesterday, the release of the core index of private consumption spending for May remained around 0.3% MoM instead of rising to 0.4% and fell from 4.9% to 4.7% over the past 12 months. Despite some slowdown, inflation growth remains at its highest level over the past forty years, hurting the purchasing power and demand of the population.

Increasing the interest rate by 75 basis points at once is a possibility, which increases the risks of a recession in the economy but at the same time can potentially lower inflation closer to the regulators' target. Several experts admit the possibility of lowering rates next year if a serious slowdown in growth cannot be avoided. This week the market will also be anticipating the rate decision by the RBA and the US employment figures.

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