(2 September 2024 – Australia) The Australian Dollar (AUD) has recovered strongly from a sustained sell-off in August as the US Federal Reserve seeks to avert a recession by reducing interest rates faster than other major economies.
The US Dollar Index slid 0.8 percent to a low of 100.60 points, its weakest level since July 2023, after Fed chairman Jerome Powell said at the Jackson Hole symposium that the time has come to cut rates.
Certainty is building among traders that the Fed will cut interest rates faster than its peers as the US central bank shifts from fighting inflation to protecting jobs and achieving a soft landing.
“There’s still an RBA cut priced by year’s end, which does not seem likely, providing more potential upside Aussie dollar fuel. US70¢ is achievable before the year is out” said Westpac Head of FX Strategy Richard Franulovich.
“August was tumultuous month for FX markets, with the USD index plunging to 13-month lows on speculation that the Federal Reserve will soon cut interest rates. A dramatic sell-off in the USD/JPY pair, down 11 percent from July highs, also sent ripples across global currency markets. With heightened expectations for further central bank moves in September and the US presidential election looming, risks are growing for more volatility as we near the end of 2024” stated Convera Head of Market Insights, Steven Dooley as part of Convera’s Global FX Outlook.
Convera Key Themes to Watch
- The dollar is losing its crown: For the first time since the beginning of 2021 FX speculators are simultaneously bullish on the euro, pound, and yen versus the US dollar.
- Betting on lower policy rates: The Federal Reserve signalled its willingness to consider easing interest rates at its last meeting, which Jerome Powell confirmed at the Jackson Hole Symposium. September looks likely for a rate cut, but what happens afterwards remains uncertain.
- Continued China pessimism: 2019 was the last year in which Chinese equities experienced a net inflow of foreign capital. Japan’s TOPIX has outperformed China’s Shanghai Composite by the most since around 2007.