The FOMC minutes couldn’t keep a lid on the AUD/USD gains for long as the pair continued the bounce back from its weekly low of 0.7136. The current market conditions are conducive for further up-move as the crowding behaviour in the US dollar shows no signs of receding for the rest of the month.
AUD/USD had posted a fresh 2020 high of 0.7276, before the FOMC minutes, which cut hopes for a change in the monetary policy guidance. The minutes revealed that the committee is more prone to an outcome-based approach rather than calendar-based forward guidance. Many of its members said that greater clarity could be provided at some point, regarding the path of the target range of the federal funds rate.
Even then, it has to be born in mind that the FOMC is in no rush to alter the course of its current monetary policy; further, the committee aims to increase its holdings of Treasury securities at least at the current pace. Chairman Jerome Powell might not change the interest rate status quo in the upcoming September 16 Fed decision, and the central bank’s lending facilities are here to stay through the end of the year.
The Reserve Bank of Australia minutes tells us that it will sustain the current monetary policy in the next meeting on September 1. The bank points to the smaller than expected downturn in the first half of the year. RBA might continue its wait and watch approach through this year as the government extends its fiscal stimulus programs for six more months
The performance of the economy will also encourage the RBA to hold-off suggestions for a negative interest rate policy. The current thinking regarding the success of the present monetary package means another round of stimulus from the bank is not in play. Such a theme is beneficial for AUD/USD as the US Fed has shown no intention to cut its unconventional policy tools in 2020.
In summary, the Australian dollar might outperform the US dollar. It will push the pair well past the 2019 high of 0.7295, given the crowding in the US dollar and the current economic as well as monetary conditions.