Australian Dollar Gains as US Dollar Weakens on Shutdown and Fed Rate-Cut Outlook

Key Takeaways

• AUD/USD stays strong above 0.6600 as the Greenback loses steam.
• US Dollar drops amid government shutdown and dovish Fed expectations.
• Investors focus on Australia’s Westpac Consumer Confidence and the Fed Minutes.

Australian Dollar Extends Its Recovery

The Australian Dollar (AUD) advanced on Monday, climbing higher as the US Dollar (USD) softened. The AUD/USD pair trades near 0.6617, hovering around the top of its recent 0.6580–0.6620 range. The recovery reflects improved risk appetite and optimism about Australia’s inflation outlook.

Meanwhile, the US Dollar Index (DXY) retreated after reaching a two-week high earlier in the session. Weakness in the Euro (EUR) and Japanese Yen (JPY) initially lifted the Greenback, but political uncertainty in those regions soon gave way to renewed concerns about the US government shutdown and Federal Reserve rate-cut expectations.

Strong Inflation Data Supports the Aussie

Australia’s economy showed signs of strength as the TD-MI Inflation Gauge revealed consumer prices rose 0.4% month-on-month in September, reversing August’s 0.3% fall. Annual inflation climbed to 3.0% from 2.8%, signaling that price pressures remain steady.

This data reinforced confidence in the Reserve Bank of Australia (RBA). Analysts believe the central bank will stay cautious before cutting rates, as persistent inflation suggests more policy patience is needed.

US Dollar Faces Pressure from Shutdown and Fed Bets

The US Dollar continued to slide as the US government shutdown entered its sixth day. The political impasse has raised concerns about short-term economic growth and delayed several important data releases.

At the same time, markets are fully pricing in a Federal Reserve interest-rate cut later this month. Some traders even expect another reduction in December, keeping the Greenback under pressure.

Market Outlook: Key Events Ahead

Traders are now watching Australia’s Westpac Consumer Confidence Index, due Tuesday, for fresh insights into domestic spending and sentiment. In the US, the Federal Reserve’s September Meeting Minutes will be released on Wednesday and are expected to guide future rate expectations.

With fewer economic reports available due to the shutdown, Fed officials’ speeches will likely drive market movement throughout the week.

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