Australia’s dollar turned higher following three days of declines ahead of tomorrow’s Reserve Bank of Australia (RBA) policy announcement, with a quarter-point cut widely expected.
Moody’s cut the US’s top sovereign credit rating by one notch on Friday, the last of the major ratings agencies to downgrade the country, citing concerns about its growing US$36 trillion debt pile.
The news saw the dollar turn lower against its major rivals following four straight winning weeks when it was boosted by rising optimism for US trade deals and then a thaw in relations with China that eased fears of a global recession.
The greenback slipped as much as 0.6% to ¥144.80 for the first time since May 9 on Monday, while the euro gained as much as 0.3% to US$1.1199.
“While the decision itself is seen as a catch-up to S&P’s move on Aug 5 2011 and Fitch’s announcement to do the same on Aug 1 2023, Moody’s decision could still feed US dollar bears,” said Paul Mackel, global head of FX research at HSBC.
“Given this rating erosion has been slow moving, the simple takeaway is Moody’s step should not matter for the US dollar. However, one needs to be careful with this assumption,” Mackel said.
US treasury secretary Scott Bessent said in television interviews yesterday that President Donald Trump will impose tariffs at the rate he threatened last month on trading partners that do not negotiate in “good faith”.
However, a Financial Times report that the US had begun serious trade talks with the EU, breaking a long deadlock, offered some hope for additional deals after Washington inked a framework agreement with Britain earlier this month.
Trump has previously said he has potential deals with India, Japan and South Korea as well, although talks with Tokyo seem to be stumbling over car tariffs.
In the market, “there’s a lot of complacency about the ability to pull off deals,” said Ray Attrill, head of FX strategy at National Australia Bank.
“Confidence that the US economy is going to weather this is very much open to question,” Attrill said.
Trump cleared a hurdle towards passing a sweeping tax cut bill that would add an estimated US$3 trillion to US$5 trillion to the nation’s debt over the next decade, after winning approval from a key congressional committee.
The dollar declined 0.2% to CHF0.8358, another safe-haven currency. Sterling added 0.1% to US$1.3297.
“The focus on US growth risks and the US administration’s policy agenda may have put the US safe-haven status in question,” said Mahjabeen Zaman, head of foreign exchange research at ANZ.
The Australian dollar edged up 0.1% to US$0.6413 after sliding more than 1% over the prior three sessions.
Markets have priced in a certainty of a quarter-point cut to the RBA’s 4.10% cash rate tomorrow, as slowing inflation allows policymakers to respond to rising global risks.
The central bank’s guidance will be key, as investors have reduced their expectations for rapid-fire rate cuts in the coming months following the Sino-US tariff truce and robust Australian employment data.
New Zealand’s kiwi dollar rose 0.2% to US$0.5890.
Bitcoin briefly jumped as much as 2.8% to reach US$107,060.46 for the first time since January, the same month that the token notched its all-time peak of US$109,071.86.