The AUD/USD pair remains steady around 0.6420, encountering indecision as the US Dollar struggles to sustain gains. US Federal Reserve Chair Jerome Powell has expressed concerns about rising inflation and unemployment risks, with no immediate plans for interest rate cuts.

The US Dollar Index briefly rose to 100.20, reflecting hesitation over US monetary policy. With the Fed maintaining interest rates between 4.25%-4.50%, the index has settled around 99.90.

Anticipated Us China Trade Meeting

An anticipated US-China trade meeting aims to ease tensions, not secure a deal. Any positive results may benefit both the US and Australian economies, as Australia is a key trading partner for China.

The US Dollar is the global reserve currency, participating in over 88% of foreign exchange turnover, averaging $6.6 trillion daily. Changes in its value are primarily influenced by the Federal Reserve’s monetary policy, especially interest rate adjustments and measures like quantitative easing.

Quantitative easing involves the Fed purchasing bonds to increase financial liquidity, often weakening the US Dollar. Conversely, quantitative tightening reverses this process, potentially strengthening the currency.

From what we’ve seen so far, with the AUD/USD pair lingering near the 0.6420 level, it’s clear that the market is entering a phase where sentiment feels neither fully bullish nor convincingly bearish. Price movement has flattened lately, with neither side showing dominance, largely due to mounting uncertainty about the direction of US monetary policy. Powell made it plain that inflation is clinging on harder than expected, while unemployment hints at worsening. That combination has dulled the appetite for any imminent loosening of financial conditions, especially in the form of a rate cut.

Market Sentiment And Policy Clarity

That hesitation was mirrored when the Dollar Index briefly tested 100.20 before slipping back under 100. The bounce was hardly forceful. It didn’t follow through, suggesting that market participants remain unconvinced about stronger USD upside in the short term. The Fed keeping its rates solidly in the 4.25%–4.50% range has contributed to the ping-ponging of expectations, but the market no longer reacts to firm policy stances in a linear fashion. Instead, it demands new data clarity before taking sides.

While some attention is shifting to upcoming US-China discussions, they appear more about restoring communication than anything groundbreaking. Still, there’s a wider knock-on effect for the Asia-Pacific region. If talks lower trade friction, even marginally, it tends to lift sentiment toward economies with heavy export ties to China. That includes Australia, whose currency is notoriously sensitive to Chinese economic pulses. A flinch in Chinese demand or supply constraints often ripples directly into AUD pricing.

It’s worth remembering that the USD’s dominant role in the global financial system—participating in almost nine out of every ten foreign exchange trades—means it doesn’t just reflect the US economy. It often reacts as a proxy for global risk appetite, liquidity demand, or adjustments in policy differentials between key central banks. The speed and scale at which the Fed shifts stance are usually the key triggers.

When the Fed enters a bond-buying cycle, injecting cash into the financial system—what we call quantitative easing—it’s common for the Dollar to lose value. That’s not a side effect; it’s baked into the mechanic. The inverse also holds true. Tightening—removing that liquidity through bond selling or halting reinvestments—can compress excess liquidity and add support to the Dollar. Our attention now turns to whether the Fed chooses to accelerate or maintain its current drawdown pace.

So, in the coming sessions, we need to stay focused on two fronts. First, fresh signals from Fed speakers could tilt sentiment, particularly if they confirm stickier inflation concerns or hint at tolerating weaker job growth. Second, any updates from the China-US meeting, even if minor in tone, should be followed closely, especially for how they feed into broader risk sentiment. What traders should take from this, above all, is that policy clarity is scarce right now—and in markets, scarcity breeds volatility.

Create your live VT Markets account and start trading now.