AUD/USD bounces back as US Dollar slips amid worries over Fed’s autonomy

AUD/USD Rebounds as US Dollar Weakens

The Australian Dollar (AUD) is making gains against the US Dollar (USD) at the start of the week, with the AUD/USD pair reversing a three-day decline. This upward movement is largely attributed to a broad decline in the US Dollar, pushing the pair to approximately 0.6714—an increase of nearly 0.35% for the day.

The US Dollar is facing renewed selling pressure following news that the US Department of Justice (DoJ) has issued grand jury subpoenas as part of a criminal probe involving Federal Reserve (Fed) Chair Jerome Powell. This development has sparked fresh worries about potential political interference with the central bank.

Currently, the US Dollar Index (DXY), which tracks the Greenback against a basket of six major currencies, is hovering near 98.88 after pulling back from recent one-month highs.

Despite these challenges, Powell has maintained that the investigation is politically driven and emphasized the importance of the Fed making decisions based on economic data rather than political influence.

Central Bank Policy Divergence Supports AUD

The growing gap between the monetary policies of the Fed and the Reserve Bank of Australia (RBA) continues to favor the AUD/USD pair. While the Fed is proceeding cautiously with policy easing—especially after last week’s mixed US labor market figures dampened hopes for an imminent rate cut—market participants still anticipate around 50 basis points of rate reductions this year.

Looking forward, investors are set to focus on Tuesday’s US Consumer Price Index (CPI) release for further insights into the Fed’s future policy direction. Additionally, comments from key Fed officials throughout the week are expected to influence market sentiment.

Australian Outlook and Key Data

In Australia, expectations are rising that the RBA’s next policy move could be a rate increase, as recent inflation figures indicate that price growth remains above the central bank’s 2-3% target range.

During a recent interview with ABC News, RBA Deputy Governor Andrew Hauser reiterated that it is “still true” Australians have likely seen the last of rate cuts for this cycle. Supporting this view, a survey by the Australian Financial Review found that 17 out of 38 economists now predict at least two rate hikes over the next year and a half.

This week’s Australian economic calendar is relatively quiet, with Westpac Consumer Confidence data due Tuesday and Consumer Inflation Expectations set for Thursday. Additionally, markets will be monitoring China’s trade figures on Wednesday, as shifts in Chinese exports and imports often impact the Australian Dollar due to the strong trade relationship between the two countries.