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Aussie Dollar Recovers Slightly After Fed-Induced Slide, Eyes on US-China Trade Talks

Elena by Elena
08/05/2025
in FED
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The Australian Dollar (AUD) edged higher in Thursday’s Asian trading, with the AUD/USD pair hovering around 0.6440, rebounding modestly after a sharp decline of over 1% in the previous session. The recovery follows a retreat from a five-month high of 0.6514 touched on Wednesday, as investor sentiment was rattled by the US Federal Reserve’s cautious policy tone.

As expected, the Fed left interest rates unchanged at 4.25%–4.50%. However, its accompanying statement flagged mounting risks surrounding inflation and employment, amplifying uncertainty in financial markets and supporting the US Dollar (USD).

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Further dampening sentiment was Fed Chair Jerome Powell’s warning during his post-meeting press conference that ongoing trade tariffs could derail the central bank’s goals for inflation and employment in 2025. Powell signaled that the Fed might adopt a more restrained, “wait-and-see” stance, citing policy instability and the lack of significant economic weakness as reasons to hold off on near-term changes.

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The Fed’s overall message emphasized a data-dependent approach, labeling inflation as “somewhat elevated” and highlighting rising concerns on both inflationary pressures and labor market dynamics. The continuation of its balance sheet runoff reinforced a broadly hawkish bias, lifting the USD and weighing heavily on risk-sensitive currencies like the Aussie.

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Adding to the USD’s strength, markets turned their attention to upcoming high-level trade negotiations between the US and China. US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer are scheduled to meet Chinese Vice Premier He Lifeng in Geneva this weekend—the first such talks since tensions flared amid tariff disputes.

Still, the Australian Dollar found some support on expectations of a potential thaw in US-China trade relations, a development closely watched by investors due to Australia’s deep trade ties with China. Optimism was further fueled by policy signals from the People’s Bank of China (PBoC), which announced plans to cut key lending rates and reduce reserve requirements for banks in a bid to stimulate economic activity.

On the domestic front, the latest Ai Group Industry Index showed a slight improvement in April, though it marked the 33rd consecutive month of contraction—driven largely by weaknesses in export-oriented manufacturing sectors. These persistent headwinds have strengthened market expectations that the Reserve Bank of Australia (RBA) may lower its cash rate by 25 basis points to 3.85% later this month.

The AUD/USD pair continues to trade under pressure, but improving sentiment around China and dovish RBA expectations may provide near-term cushioning. Traders will remain focused on developments from the US-China talks and upcoming macroeconomic data for directional cues.

Related Topics:

  • Do Stocks Go Up When the Fed Cuts Rates?
  • Is the Fed Going to Lower Interest Rates?
  • What Happens if the Fed Raises Interest Rates Too High?
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Elena

Elena

Elena, a seasoned foreign exchange trader with a proven track record in the dynamic world of currency markets, brings a wealth of expertise and professionalism to the financial realm. With an extensive background spanning over a decade, she has honed her skills in analyzing global economic trends and implementing strategic trading solutions. Known for her meticulous attention to detail and analytical prowess, Elena has navigated through volatile market conditions with finesse, consistently delivering impressive results for her clients. Her comprehensive understanding of macroeconomic indicators, coupled with a keen awareness of geopolitical events, allows her to make informed decisions that optimize trading portfolios. Elena's commitment to staying ahead of the curve is evident in her continuous pursuit of knowledge and mastery of cutting-edge trading technologies. Her disciplined approach to risk management ensures prudent investment strategies, instilling confidence in both colleagues and clients alike.

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The NZD/USD pair extended its pullback on Thursday, slipping from the recent one-week high around 0.5965-0.5970 to trade near 0.5920...

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Recent Posts

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  • EUR/GBP Retreats Amid ECB Dovishness and Strong UK Inflation Data 22/05/2025
  • EUR/JPY Faces Selling Pressure Near 162.35 Amid BoJ Rate Hike Speculation 22/05/2025

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