The AUD/USD pair holds positive ground around 0.6220 during the early Asian session on Monday. However, the potential upside of the pair might be limited as markets continue to digest the US Federal Reserve’s (Fed) hawkish pivot. The market will likely be quiet heading into the last week of 2024.
The Fed cut its benchmark interest rate by a quarter point at the December meeting, and the latest Dot Plots indicated two rate cuts next year. Fed Chair Jerome Powell said earlier this month that Fed officials "are going to be cautious about further cuts" after an as-expected quarter-point rate reduction. The Fed’s hawkish message is likely to support the Greenback and act as a headwind for AUD/USD in the near term.
Furthermore, economists widely expect tax cuts, tariffs, and deregulation by the incoming administration of President-elect Donald Trump would stoke inflation and might convince the US central bank to scale back its expectations for the year ahead.
On the other hand, the Reserve Bank of Australia’s (RBA) dovish bets might drag the Aussie lower. The RBA’s December meeting minutes emphasised that policymakers have become confident that inflationary pressures are easing in line with expectations. Traders have priced in nearly a 65% chance of a 25 basis points (bps) rate cut at the February 18 meeting, with full expectations for a cut by April.
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