FX.co ★ Australian Dollar Strengthens as US Dollar Retreats

On Friday, the Australian dollar demonstrated a recovery, climbing towards the $0.644 level. This followed losses incurred in the prior session, buoyed by the weakening of the US dollar due to rekindled concerns surrounding the nation's fiscal outlook. The recently approved budget bill by US President Trump, which enacts substantial tax reductions and increases in defense spending, has ignited fears regarding escalating deficits and enduring fiscal instability. Additionally, the Australian currency benefited from an improved outlook on global trade dynamics, highlighted by China's Foreign Ministry statement indicating that Beijing and Washington have committed to maintaining open communication channels after a high-level diplomatic discussion. This development bodes well for Australia, given its economic reliance on trade with China. On the domestic front, the Reserve Bank of Australia recently reduced its cash rate to 3.85%, aligning with market projections. This step, while indicative of the central bank's cautious stance, also highlighted the growing downside risks and cooling inflation, hinting at the possibility of further easing if necessary.