The AUD/USD pair broke a five-day losing streak and traded around 0.6200 in the European session on Monday. The U.S. dollar (USD) continued to weaken in thin trading ahead of the New Year holiday, and the Australian dollar (AUD) rose as U.S. Treasury yields fell.
The U.S. Dollar Index (DXY), which tracks the value of the greenback against six major currencies, is currently hovering around 108.00. Meanwhile, the 2-year and 10-year U.S. Treasury yields are at 4.30% and 4.59%, respectively, as of this writing.
The U.S. dollar could face upward pressure on expectations of fewer rate cuts from the Federal Reserve (Fed) over the coming year. Traders continue to digest the Fed’s hawkish shift following its decision to cut its benchmark rate by a quarter percentage point in December. The Fed’s latest dot plot forecast shows just two rate cuts from the central bank in 2025, fueling speculation that the central bank’s tightening cycle may be less aggressive than previously expected.
Meanwhile, the Australian dollar was supported by rising 10-year Australian government bond yields, which have climbed to 4.50%, the highest level in more than a month. The Reserve Bank of Australia (RBA) reiterated its commitment to maintain “sufficiently restrictive” policy until inflation returns to its 2-3% target range.
Minutes from the Reserve Bank of Australia’s December meeting highlighted policymakers’ growing confidence that they can manage inflation, even as they acknowledged ongoing risks. Market expectations remain mixed, with some expecting a 25 basis point rate cut as early as February and a more significant easing in April.
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- What is the Purpose of the RBA Audit?
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- Why Does the RBA Want to Tame Inflation?
