The Australian dollar crashed back down through the US 70c mark last week after Reserve Bank of Australia (RBA) governor Philip Lowe noted that interest rates would remain low for "an extended period" which had analysts predicting that more interest rate cuts were on the way as the year unfolds.
Quarterly inflation figures which are due out on Wednesday are expected to come in under expectations may be the trigger for the rate cuts in order for the RBA to push the inflation target to their preferred target range of between 2 and 3 percent.
The other news likely to affect the Australian dollar is the upcoming rate decision from the US Federal Reserve where many in the market are now expecting the Fed to cut rates by 50 points in stead of the 25 basis points earlier predicted,
This is not a done deal and if the Fed sticks with a 25 basis point cut the Aussie dollar is expected to react negatively as this will add more ammunition for the RBA to cut rates.
Some are wondering why the market predicts the Fed will cut by 50 points in light of the recent US economic data which by and large has been quite strong.
“The US data pulse has been broadly positive since the June meeting and this obviously lifts the probability of Chair Powell taking a more cautious tone than the market is expecting," says Daniel Been, head of FX research at ANZ.
"With the market still pricing in a chance of a 50bp move, we think there is scope for disappointment. Should this occur, the AUD is likely to feel the pinch of a firmer USD." He added.
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