The Australian dollar rose to around $0.629 on Thursday, though it has remained in a sideways trading range for about a week, reflecting ongoing market caution in response to rising global trade uncertainties.
AUD rises but traders remain cautious
US President Donald Trump’s announcement of plans to impose reciprocal tariffs on any country that charges duties on US imports has raised concerns over an escalating global trade war, further pressuring global risk sentiment. In addition to trade tensions, hotter-than-expected US consumer inflation data has prompted traders to revise their expectations for future Federal Reserve interest rate cuts. As a result, markets are now pricing in just one quarter-point rate cut from the Fed this year, down from previous projections for more aggressive easing.
Fed in no hurry to ease policy
Fed Chair Jerome Powell, in his recent testimony before Congress, signaled that the central bank is not in a hurry to ease policy, indicating a more cautious approach.
Internal factors influencing Australian dollar
Domestically, Australian consumer inflation expectations also showed a rise, hitting a ten-month high of 4.6% in February, up from 4% in January. This uptick in inflation expectations has fueled concerns about higher living costs for households, although it remains well below the peak levels of last year. Despite these pressures, markets are still anticipating that the Reserve Bank of Australia may begin cutting interest rates as early as next week, in an effort to support economic growth and mitigate inflationary risks. This combination of domestic inflation expectations and global uncertainties has created a mixed outlook for the Australian dollar in the short term, leaving traders cautious while awaiting further developments.
