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The Australian Dollar climbs as expectations grow for a Fed rate cut in September.
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Markets anticipate the Reserve Bank of Australia could deliver a larger 50 basis-point rate cut in November.
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The CME FedWatch Tool now shows an 87% probability of a 25 basis-point cut at the upcoming Fed meeting
The Australian Dollar (AUD) advanced against the US Dollar (USD) on Monday, marking its second consecutive session of gains. The AUD/USD pair continues to benefit from rising market expectations of a Federal Reserve (Fed) rate cut in September, which could limit upside for the US Dollar.
At the Jackson Hole symposium, Fed Chair Jerome Powell acknowledged increasing risks to the labor market but emphasized that inflation remains a concern. He clarified that the Fed's policy decisions remain data-dependent and not predetermined, noting that further tightening may not be necessary based solely on uncertain labor market estimates.
While the Reserve Bank of Australia (RBA) adopted a cautious stance following last week’s rate cut, markets are now anticipating a possible resumption of easing—with a larger 50 basis-point cut expected in November.
US Dollar Holds Steady Ahead of Key Economic Data
- Despite pressure from rate cut expectations, the US Dollar Index (DXY) remains stable, trading near 97.90. Investors await key releases this week, including the Q2 US GDP (Annualized) and July Personal Consumption Expenditures (PCE) Price Index—the Fed’s preferred inflation measure.
- According to the CME FedWatch Tool, the probability of a 25 basis-point cut at the September Fed meeting has surged to 87%, up from 75% before Powell’s remarks. However, recent data has offered mixed signals: US Initial Jobless Claims rose to 235,000—an eight-week high—suggesting some softening in the labor market, while PMI figures indicate continued economic strength.
- S&P Global’s preliminary Composite PMI for August rose to 55.4 from 55.1, while Manufacturing PMI jumped to 53.3, surpassing expectations. Services PMI edged slightly lower to 55.4 but remained above forecasts.
- Federal Reserve officials remain divided. Chicago Fed President Austan Goolsbee noted that September remains a live meeting, while Boston Fed President Susan Collins expressed openness to a rate cut, citing global headwinds and potential labor market weakness.
Technical Outlook: AUD/USD Eyes Breakout Above Resistance
The AUD/USD pair is currently trading around 0.6480 and testing a confluence resistance zone near 0.6500. Technical analysis shows a potential breakout from a descending channel pattern, indicating a shift from bearish to bullish momentum.
Key resistance lies at the 50-day Exponential Moving Average (EMA) of 0.6491, aligned with the upper boundary of the channel. A clear break above this level could propel the pair toward the monthly high of 0.6568 (August 14) and possibly the nine-month peak of 0.6625 (July 24).
On the downside, immediate support is seen at the 9-day EMA of 0.6477. A drop below this level may weaken short-term momentum and expose the pair to further losses toward the two-month low of 0.6414 (August 21) and the three-month low of 0.6372 (June 23).
