The AUD/USD pair has experienced a recovery rally following a correction near the 0.6840 level during the early European session. Investors are now focusing on the upcoming release of the Reserve Bank of Australia (RBA) minutes and the interest rate decision by the People’s Bank of China (PBoC), which have contributed to the strength of the Australian asset.
In Asia, S&P500 futures recorded some losses as investors exercised caution ahead of an extended weekend in the United States. Despite this, the overall market sentiment remains positive, with investors confident that the Federal Reserve (Fed) will limit interest rate hikes to just one by the end of the year.
The US Dollar Index (DXY) has faced selling pressure and dipped to approximately 102.30, driven by growing investor optimism regarding the economic outlook of the United States.
Notably, the preliminary Consumer Sentiment Index for June, reported by the University of Michigan, surpassed estimates by reaching 63.9, compared to the projected 60.0 and the previous release of 59.2.
Optimism is prevailing among market participants due to the decrease in producer and consumer inflation, primarily influenced by declining gasoline prices. This has led investors to believe that the Federal Reserve (Fed) will not raise interest rates more than once this year, despite Fed Chair Jerome Powell confirming two minor rate hikes.
Concerning the Australian Dollar, investors eagerly await the release of the RBA minutes scheduled for Tuesday. These minutes will provide a comprehensive explanation behind the RBA Governor Philip Lowe’s decision to raise the interest rate by 25 basis points (bps). Additionally, insights into the interest rate guidance will be of utmost importance.
Furthermore, the interest rate decision by the PBoC carries significant weight. Given the Chinese economy’s efforts to spur economic activities, a dovish stance is expected from the PBoC. It is noteworthy that Australia is China’s primary trading partner, and an economic recovery in China will bolster the Australian Dollar.
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