Australian Dollar edges lower as Fed hike bets grow ahead of Trump-Xi summit

The Australian Dollar (AUD) slipped slightly against the US Dollar (USD) on Monday, trading around 0.7120 during the early Asian session. This movement came as the Federal Reserve (Fed) raised interest rates by 25 basis points and indicated potential further hikes in the months ahead. Earlier this week, the Fed increased rates by a quarter point, its first hike in three years, aimed at tackling inflation.

Federal Reserve Chair Kevin Warsh emphasized that "inflation is too high and has been for too long." Markets now anticipate a 56.5% probability of another US rate increase during the October Fed meeting, up from 42.5% a week earlier, as per the CME FedWatch tool. Traders await the Australian jobs report later on Thursday, with the Unemployment Rate expected to stay steady at 4.5% for August and employment numbers to rise by 20,000.

The upcoming US-China summit featuring President Donald Trump and President Xi Jinping is closely monitored by markets. UOB Group strategists maintain their "1-3 weeks" outlook for AUD/USD, noting that while weakness is possible, the pair may be oversold and could potentially drop to 0.7050 if it falls below 0.7100. The RBA sets the level of interest rates in Australia, influencing the overall economy.

Higher interest rates generally support the AUD, while lower rates have the opposite effect. China's economic health significantly impacts the AUD due to Australia's heavy reliance on exports, particularly Iron Ore, which is China's primary destination.