The Australian Dollar (AUD) came under renewed selling pressure on Friday, giving up gains from earlier in the week as markets brace for a potential interest rate cut by the Reserve Bank of Australia (RBA). Meanwhile, the US Dollar (USD) rebounded, supported by growing expectations of a Federal Reserve rate cut in September.
RBA Rate Cut Expectations Drag on AUD
The AUD/USD pair slipped after a three-day winning streak, as traders priced in a 92% probability that the RBA will cut interest rates by 25 basis points next week, bringing the cash rate to 3.60%. The case for monetary easing has strengthened following a dip in core inflation to 2.7% in June—comfortably within the central bank’s 2–3% target range. Rising unemployment and slowing wage growth have further supported the dovish outlook.
Despite signs of weakening domestic demand, Australia’s trade performance showed resilience. The country’s trade surplus widened significantly to AUD 5.37 billion in June, beating the market forecast of AUD 3.25 billion, driven by a 6% rise in exports.
US Dollar Recovers on Fed Speculation and Trade Developments
The US Dollar Index (DXY) climbed to 98.10 as traders responded to fresh developments in US monetary and trade policy. President Donald Trump nominated Stephen Miran to replace Adriana Kugler on the Federal Reserve Board, a move that could signal a shift in the Fed’s composition ahead of key rate decisions.
Adding to market volatility, Trump also reiterated plans to raise tariffs across a broad range of imports—including a proposed 100% duty on semiconductors and a 250% levy on pharmaceuticals. These sweeping trade measures reignited concerns about inflation and economic slowdown, potentially complicating the Fed’s policy path.
Despite these tensions, weak US job data has increased the likelihood of a Fed rate cut. Initial Jobless Claims rose to 226,000 for the week ending August 2, exceeding both forecasts and the previous week’s reading of 218,000. Combined with July’s soft Nonfarm Payrolls (NFP) report, markets are now pricing in a 93% chance of a 25-basis-point cut in September, with further easing possible by December.
Technical Outlook: AUD/USD Holds Near 0.6510
From a technical perspective, the AUD/USD pair is holding above the key support at 0.6500, trading around 0.6510 at the time of writing. The 14-day Relative Strength Index (RSI) remains above 50, signaling underlying bullish momentum. The pair also sits above its nine-day Exponential Moving Average (EMA), reinforcing the short-term bullish bias.
- Resistance Levels: Immediate resistance lies near the psychological 0.6600 mark, with a potential breakout toward 0.6625—the nine-month high reached in late July.
- Support Levels: On the downside, support is seen at the nine-day EMA (0.6501) and the 50-day EMA (0.6498). A break below these could trigger further declines toward 0.6419 (August low) and 0.6372 (June low).
Looking Ahead
Investors will closely monitor next week’s RBA decision and any follow-up commentary, which could set the tone for the AUD in the coming weeks. On the US side, market participants are watching Trump’s evolving tariff plans and any remarks from Fed officials for clues on future rate cuts.
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