The AUD/USD pair extended its losses for the fifth consecutive day, trading around 0.6220 during the Asian session on Friday. The Australian Dollar (AUD) continues to face downward pressure as the US Dollar (USD) benefits from growing expectations that the US Federal Reserve (Fed) will implement fewer rate cuts next year. In its December meeting, the Fed reduced interest rates by a quarter point and revised its 2025 outlook, cutting the number of anticipated rate cuts to two, down from the previously forecasted four.
The US Dollar Index (DXY), which tracks the USD against six major currencies, remains above the 108.00 mark, just shy of its highest level since November 2022. However, the Greenback’s upside could be capped by subdued US Treasury yields, with the 2-year and 10-year yields at 4.32% and 4.57%, respectively, as of writing.
The AUD’s struggles are compounded by expectations of potential interest rate cuts by the Reserve Bank of Australia (RBA) in 2025. Markets anticipate the RBA will lower rates to 3.6% by the end of the year. According to the latest RBA minutes, the central bank is becoming increasingly confident that inflation is on a sustainable path toward its target, which could lead to further policy easing.
Adding to the pressure on the Australian Dollar are growing concerns about China’s economic health, as the country remains Australia’s largest trading partner. While the World Bank raised its growth forecast for China in 2024 and 2025, it also warned that weak consumer confidence and challenges in the property sector will continue to pose risks to the economy.
Traders are also focusing on China’s recent economic measures, including reports that officials have gained more flexibility to use government bond proceeds to stimulate growth. These efforts could potentially boost oil demand from China, the world’s largest consumer of the commodity, providing some support to global markets.
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