AUD/USD retreated from a five-month high of 0.6493 hit on Monday, dropping to around 0.6450 during the Asian session on Tuesday (06/05). The decline came as the US Dollar (USD) strengthened ahead of the Federal Reserve's (Fed) upcoming monetary policy decision on Wednesday.
While the Fed is widely expected to keep interest rates on hold, investors' focus remains on Chairman Jerome Powell's remarks, especially amid uncertainty over tariffs and growing pressure from President Donald Trump to cut rates.
Adding to the mix, Treasury Secretary Scott Bessent said on Monday that the US was "very close to some kind of deal," echoing Trump's comments over the weekend that suggested a trade agreement could be finalized soon. Trump confirmed negotiations were underway but ruled out talks with Chinese President Xi Jinping this week. Meanwhile, China's Commerce Ministry said last Friday that it was reviewing a US proposal to restart trade talks.
On the data front, the US ISM Services PMI rose to 51.6 in April, beating expectations of 50.6 and improving from 50.8 in March. The New Orders Index rose to 52.3 (from 50.4), while the Services Employment Index improved to 49 (from 46.2).
The AUD (Australia) was supported after Australian Prime Minister Anthony Albanese secured a second three-year term in the 2025 Federal Election, marking a significant improvement on Saturday's result. Albanese promised a "disciplined" government focused on cost-of-living relief, renewable energy, tax cuts, housing and healthcare.
The Westpac CEO noted that the "worst is over" in terms of consumer and business pressures, with demand for M&A financing stronger than expected. The bank expects a 25bps interest rate cut by the Reserve Bank of Australia (RBA) at its May 19–20 meeting.
Meanwhile, National Australia Bank (NAB) has raised its year-end AUD/USD forecast to 0.70, citing continued weakness in the USD market. NAB expects the pair to remain around 0.65 until mid-year, and gradually rise towards 0.67 by December. The bank attributes the outlook to the shift in interest rate differentials and anticipates the RBA to cut rates by 50 basis points in May. (Newsmaker23)
Source: FXstreet
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