The AUD/USD currency pair has been on a rollercoaster ride in recent months, with the Australian dollar gaining strength against the US dollar. As the pair approaches the key level of 0.6770, traders are keeping a close eye on two major factors that could impact its future direction: USD weakness and US inflation.
USD Weakness
The US dollar has been weakening against major currencies, including the Australian dollar, due to a number of factors. One of the main drivers of this weakness is the ongoing trade tensions between the US and China. The two countries have been engaged in a trade war for over a year, with both sides imposing tariffs on each other’s goods. This has led to uncertainty in global markets and has put pressure on the US dollar.
Another factor contributing to USD weakness is the Federal Reserve’s monetary policy. The Fed has been cutting interest rates in an effort to stimulate the economy and boost inflation. Lower interest rates make the US dollar less attractive to investors, as they can earn higher returns elsewhere. This has also contributed to the weakening of the US dollar.
US Inflation
Inflation is another key factor that could impact the direction of the AUD/USD currency pair. Inflation refers to the rate at which prices for goods and services are increasing. If inflation is high, it can lead to a decrease in the value of a currency, as it reduces the purchasing power of consumers.
The US has been experiencing low inflation in recent years, which has led to concerns among policymakers. The Fed has set a target inflation rate of 2%, but it has struggled to reach this goal. If inflation remains low, it could lead to further interest rate cuts by the Fed, which would weaken the US dollar and potentially boost the value of the Australian dollar.
Conclusion
As the AUD/USD currency pair approaches the key level of 0.6770, traders are closely watching USD weakness and US inflation. The ongoing trade tensions between the US and China, as well as the Fed’s monetary policy, are contributing to the weakening of the US dollar. Meanwhile, low inflation in the US could lead to further interest rate cuts and a weaker dollar. These factors will continue to impact the direction of the AUD/USD currency pair in the coming months.
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