The Australian Dollar (AUD) has been on an upward trajectory against the US Dollar (USD), trading near the 0.6590 mark during Tuesday’s early Asian session. The rally in the AUD/USD pair is fueled by several factors, including a weakening US Dollar and growing expectations of a rate cut by the US Federal Reserve (Fed), which is anticipated to ease policy in response to the disappointing August jobs data.
Key Economic Data Strengthens the Aussie
The Australian Dollar is benefitting from positive economic data out of Australia. In particular, the country’s Trade Balance expanded to 7,310 million in July, exceeding expectations, and the GDP growth for Q2 rose 0.6% quarter-over-quarter, surpassing the 0.5% forecast. Additionally, Australia’s Consumer Price Index (CPI) showed an increase of 2.8% year-over-year in July, which is above the previous month’s 1.9% rise and higher than the 2.3% forecast. These indicators have helped ease fears of a more aggressive rate cut from the Reserve Bank of Australia (RBA), allowing the AUD to strengthen.
Fed Rate Cut Bets Weigh on the US Dollar
The US Dollar continues to face pressure as market participants increase their bets on the Fed cutting interest rates. According to the CME FedWatch tool, the market is pricing in a 92% chance of a 25-basis-point rate cut by the Fed at its September meeting. This is in response to weaker-than-expected job growth in the US, as reported by the August Nonfarm Payrolls (NFP), which added only 22,000 jobs—far below expectations of 75,000.
The dovish tone of the Fed, combined with the ongoing slowdown in the US labor market, is expected to keep the US Dollar in check. Additionally, the rising odds of a 50-basis-point rate cut this month have further pressured the Greenback, making the Australian Dollar more attractive.
Technical Outlook for AUD/USD
On the technical front, the AUD/USD pair is trading within an ascending channel, signaling a strengthening bullish bias. The pair is positioned above the nine-day Exponential Moving Average (EMA), suggesting stronger short-term momentum.
If the pair manages to break the upper boundary of the ascending channel near 0.6620, it may target the 10-month high of 0.6625 recorded on July 24. A break above this level could open the door for a move toward the 11-month high of 0.6687 recorded in November 2024.
On the downside, the initial support is at the nine-day EMA of 0.6551, followed by the lower boundary of the ascending channel at around 0.6540. A break below this zone could weaken the bullish outlook, potentially sending the pair to test the 50-day EMA at 0.6511, or even the three-month low of 0.6414 recorded on August 21.
Conclusion
The Australian Dollar continues to benefit from stronger-than-expected economic data and a dovish Fed, which has dampened the USD. While the pair has seen a solid rally, technical resistance near 0.6620 remains in focus. Traders will also look to upcoming US data, including the Producer Price Index (PPI) and Consumer Price Index (CPI), which could provide further clues on the Fed’s next move. If inflationary pressures in the US surprise to the upside, the USD might regain some strength, capping the AUD/USD rally. For now, the Aussie remains on a bullish path, supported by both domestic and global factors.
Stay updated with Daily Forex Pakistan