The Australian Dollar (AUD) strengthened slightly against the US Dollar (USD) on Monday, extending its gains as the greenback remained on the defensive. This move came amid strong confidence that the Federal Reserve (Fed) will cut interest rates by 25 basis points (bps) at its monetary policy meeting on Wednesday, a scenario the market now views as a done deal.

At the time of writing, AUD/USD was trading near 0.6672, its strongest level in more than ten months. The currency pair has benefited from the broad USD weakness, as traders fully anticipate imminent Fed policy easing. Meanwhile, the US Dollar Index (DXY), which tracks the greenback against a basket of six major currencies, was hovering above an eight-week low around 97.30.

Recent positioning data reinforced the shift in sentiment. The latest CFTC Commitment of Traders (COT) report shows that net speculative short positions in AUD futures contracts fell to approximately -79.2 thousand contracts, compared to -82.7 thousand contracts previously. This marks the second consecutive week of reduced bearish exposure, driven in part by increased long bets and short covering.

Market focus now shifts to a busy data calendar on both sides of the Pacific. In the US, Tuesday's Retail Sales will be crucial in gauging consumer strength ahead of Wednesday's Fed decision.

In Australia, Thursday's employment report will be crucial in shaping Reserve Bank of Australia (RBA) policy expectations. The central bank has signaled that the pace of its cash rate cuts will be largely driven by labor market conditions, making this week's employment data highly sensitive to the currency. (alg)

Source: FXstreet