AUD/USD Range-Bound as Fed and RBA Rate Hike Expectations Clash
The Australian Dollar is trading cautiously on Tuesday due to conflicting expectations of interest rate hikes by the Federal Reserve and the Reserve Bank of Australia. Soft US economic data released earlier in the day failed to generate sustained selling pressure on the US Dollar, which maintained its strength.
The ISM Manufacturing Purchasing Managers Index fell to 54.6 in August from 55.6 in July, missing market forecasts. The US Dollar Index (DXY) rose 0.23% to around 99.64, despite the weaker data.
Elevated oil prices due to tensions in the Middle East are adding to global inflation risks and potentially complicating the Fed's efforts to return inflation to its 2% target. The RBA has already delivered three rate hikes earlier this year, while hotter-than-expected July Consumer Price Index (CPI) data strengthen the case for further monetary policy tightening.
The Australian Dollar draws support from upbeat Chinese data and Australia's close trade ties with China. However, attention now turns to Australia's second-quarter Gross Domestic Product (GDP) data, due on Wednesday.