AUD/USD Surges Above 0.6420 Mark as USD Weakens and Hopes for US Soft Landing Increase

During the Asian session on Monday, the AUD/USD held above the 0.6400 area, with the Australian Dollar (AUD) benefiting from a weaker US Dollar and diminishing concerns about China’s deflation. Currently trading near 0.6425, the pair has gained 0.75% for the day.

Following the G20 Summit, US Treasury Secretary Janet Yellen expressed greater confidence that the US can effectively manage inflation without negatively impacting the job market. Yellen also stated that inflation indicators are decreasing, with no significant wave of layoffs. Chicago Fed President Austan Goolsbee also outlined the central bank’s objective of leading the economy towards a “golden path.” This scenario envisions falling inflation rates without causing a recession. Furthermore, Fed New York President John Williams emphasized the decline in inflation and the improving economic balance.

Based on the CME FedWatch Tool, the market has priced in a 93% probability of interest rates remaining unchanged at the September meeting and a 43.5% chance of a rate hike at the November meeting. Strong US economic data from last week supports the expectation of a sustained low-interest rate environment in the US. This could strengthen the US Dollar (USD) and limit the upside potential of the AUD/USD pair.

During its recent policy meeting, the Reserve Bank of Australia (RBA) maintained the current interest rates at 4.10% for the third consecutive month. However, RBA Governor Philip Lowe cautioned that further tightening may be necessary to control inflation. In a speech, he highlighted concerns about wages and profits exceeding levels consistent with achieving the inflation target by late 2025. Lowe also acknowledged the strong wage growth and the sustainably low Unemployment Rate.

Furthermore, Chinese inflation figures for August showed improvement, leading to a rise in the New Zealand Dollar against the US Dollar. The Chinese Consumer Price Index (CPI) increased by 0.1% YoY, recovering from a 0.3% decline in the previous month, surpassing the anticipated 0.2% rise. The monthly figure met expectations at 0.3%. Additionally, the Producer Price Index (PPI) fell by 3.0% YoY, aligning with market consensus compared to a 4.4% drop in July.

Looking ahead, market players will focus on Tuesday’s Australian Westpac Consumer Confidence for September. On Wednesday, attention will shift to the August US Consumer Price Index (CPI), expected to rise by 0.5% monthly, while the core monthly figure is projected to remain at 0.2%. Australia’s employment data and US Retail Sales will be in the spotlight on Thursday, potentially causing volatility and providing a more precise direction for the AUD/USD pair.