- AUD/USD trades in positive territory for two straight days on Wednesday.
- Fed’s Mester said she might open the door to rate cuts if the US economy performs as she expects.
- The Reserve Bank of Australia (RBA) kept interest rates steady at 4.35% on Tuesday.
The AUD/USD pair extends the rally around 0.6530 during the early Asian session on Wednesday. The sell-off in the US Dollar (USD) and the hawkish stance from the Reserve Bank of Australia (RBA) provide some support to the pair. Investors will take more cues from RBA Governor Bullock’s speech on Friday for fresh catalysts.
Federal Reserve (Fed) Bank of Cleveland President Loretta Mester said on Tuesday that the US central bank could lower interest rates later this year, but it would be a mistake to cut too soon. Meanwhile, Minneapolis Fed President Neel Kashkari stated that the central bank has not yet reached its goal on year-over-year inflation data, but 3-month and 6-month data is basically there. Fed Chair Jerome Powell downplayed the possibility of a March rate cut favored by markets, and the upbeat labor market data last week might convince the central bank to move out any consideration of interest rate cuts to the second half of the year.
On the Aussie front, the RBA decided to leave the cash rate unchanged at 4.35% at the February meeting on Tuesday. During the press conference, the RBA board said inflation had clearly eased, but it was still high at 4.1%. The board said that further rate hikes couldn’t be ruled out and the central bank will closely monitor developments in the global economy, trends in domestic demand, and the outlook for inflation and the labor market. The hawkish guidance on inflation boosts the Australian Dollar (AUD) and acts as a tailwind for the AUD/USD pair.
However, the uncertainty around the outlook for the Chinese economy and the ongoing geopolitical tensions in Ukraine and the Middle East might impact Australia’s economy and might cap the upside of the pair.
Traders will keep an eye on the US Balance of Trade and Fed speaks on Wednesday. Later this week, the Chinese Consumer Price Index (CPI) and Producer Price Index (PPI) will be due. Market players will take cues from the data and find trading opportunities around the AUD/USD pair.
