Key Moments
- AUD/USD reached a new yearly high of 0.6740 during Tuesday’s European session as antipodean currencies strengthened.
- Improved risk appetite weighed on the US Dollar, with the Dollar Index trading slightly lower near 98.30.
- Traders are watching upcoming Australian CPI and US Nonfarm Payrolls for clues on RBA and Fed policy moves.
Risk-On Mood Lifts AUD/USD
The AUD/USD pair climbed to 0.6740, supported by broad strength in antipodean currencies and a risk-on market mood. Investors favored risk-sensitive assets, keeping the pair well bid.
Market participants also digested the effect of US military action in Venezuela. Earlier demand for safe havens eased, boosting the Australian Dollar further.
Australian Dollar Performance Against Majors
The Australian Dollar gained notably against the Swiss Franc, outperforming other major currencies in the session.
A heat map summarized AUD movements versus major currencies, using the base currency from the left column and the quote currency from the top row. For instance, AUD/USD shows the percentage change for that pair during the session.
| Feature | Description |
|---|---|
| Base currency | Selected from left column (e.g., AUD) |
| Quote currency | Selected from top row (e.g., USD) |
| Displayed value | Percentage change of the base/quote pair for the session |
| AUD performance highlight | Strongest versus Swiss Franc |
US Dollar Softens as Sentiment Improves
Risk-on sentiment weighed on the US Dollar and supported AUD/USD. At the time of writing, the Dollar Index traded slightly lower near 98.30. This softer tone matched the broader shift toward risk assets.
Focus Turns to Australian CPI and US NFP
Investors now focus on Australia’s November CPI release, expected at 3.7% annually, slightly below October’s 3.8%.
The Reserve Bank of Australia indicated further tightening could occur if inflation does not moderate, increasing attention on the CPI data.
For the US Dollar, the upcoming December Nonfarm Payrolls report, due Friday, will influence Federal Reserve policy expectations.
AUD/USD Technical Overview
AUD/USD traded slightly higher near 0.6723, remaining above the rising 20-day EMA, which supports a bullish technical bias.
The 14-day Relative Strength Index (RSI) stood at 66.93, signaling strong upside momentum.
The 20-day EMA acts as dynamic support. A close below it could trigger a deeper correction toward 0.6600. Holding above allows room for further gains, with the October 2024 high of 0.6935 as a potential target.
(This technical analysis was produced with AI assistance.)
US Dollar: Structure and Policy Drivers
What is the US Dollar?
The US Dollar (USD) is the official currency of the United States and circulates in several other countries alongside local currencies. It accounts for over 88% of global foreign exchange turnover, averaging $6.6 trillion daily in 2022.
After World War II, the USD replaced the British Pound as the world’s reserve currency. Previously, it was backed by gold until the 1971 end of the Gold Standard.
How Federal Reserve Decisions Affect the US Dollar
The Federal Reserve controls the US Dollar’s value through monetary policy. Its dual mandate is to maintain price stability and promote full employment. Interest rate adjustments are the main tool.
When inflation exceeds the 2% target, the Fed raises rates, which usually strengthens the Dollar. Conversely, if inflation falls below 2% or unemployment rises, rate cuts often weigh on the currency.
Quantitative Easing and Its Impact
Quantitative easing (QE) is a tool used to boost credit when banks hesitate to lend and rate cuts are insufficient. The Fed creates Dollars to buy government bonds from financial institutions, aiming to ease credit disruptions. QE often lowers the Dollar’s value.
Quantitative Tightening and Its Influence
Quantitative tightening (QT) is the reverse of QE. The Fed stops bond purchases and may not reinvest maturing bond principal. Reducing balance sheet support usually strengthens the US Dollar.
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