Australian Dollar stands soft as investors await local CPI data

• The AUD/USD declined on Tuesday to 0.6460.
• Market participants await inflation data amid renewed US-China trade war fears.
• Mixed local data, hawkish RBA and US Dollar strength influence AUD/USD sentiment.

The AUD/USD pair has been struggling to sustain its intraday gains, extending its losses for the second consecutive day and currently trading around 0.6460. Market participants will be closely monitoring inflation data due for release during Wednesday's trading hours, with geopolitical concerns, particularly renewed US-China trade war fears, casting a shadow over the currency.

The AUD/USD pair faces an uncertain outlook influenced by the hawkish Reserve Bank of Australia (RBA) and mixed Australian economic data. The US Dollar's strength has weighed on the pair, but potential rate hikes from the RBA may limit the downside.

Daily digest market movers: Australian Dollar pressured lower ahead of inflation data

• President-elect Donald Trump's threatened tariffs fuel risk aversion, weakening the China-sensitive Australian Dollar.
• Australia's inflation rate is forecast to climb to 2.3% YoY in October, up from 2.1% in September.
• The RBA's next rate announcement on December 10 may be influenced by the inflation report which could stop the Aussie’s bleeding.
• On the other hand, the US Personal Consumption Expenditure Price Index on Wednesday will provide clues for Fed interest rate decisions and might also move the pair.
• On Thursday, November’s Federal Open Market Committee Minutes showed little insight.
• Federal Reserve officials had mixed views on further rate cuts but agreed not to signal future policy direction clearly.

AUD/USD technical outlook: Indicators lack momentum, but support at 0.6430 may hinder further downside.

The AUD/USD continues to struggle for momentum with technical indicators signaling further weakness. Both the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) remain in negative territory, suggesting that bears are in control. However, the currency pair has found support at 0.6430, which could potentially halt the decline. On the upside, a break above 0.6450 could trigger a recovery.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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