Australian Dollar Strengthens as Fed Rate Cut Bets Pressure US Dollar

Highlights:

• Australian Dollar (AUD) trades near 0.6520 at the time of writing, supported by weaker US Dollar.
• Markets now price 94% odds of a Fed rate cut in September after soft US inflation data.
• Tariff truce between US and China boosts sentiment for AUD given strong trade links.

AUD/USD Holds Gains Despite RBA Cuts

The Australian Dollar (AUD) traded around 0.6520 at the time of writing, holding firm after recent gains, as markets increased bets on US Federal Reserve rate cuts. The Reserve Bank of Australia (RBA) recently lowered the Official Cash Rate by 25 basis points to 3.6%, its third cut in 2025, citing easing inflation and slower labour market conditions. While the rate cut initially weighed on sentiment, the Aussie found support from global factors.

Fed Outlook Weakens US Dollar

The US Dollar Index (DXY) was trading near 98.10 at the time of writing, down almost 0.5% from the previous session. July’s US Consumer Price Index (CPI) rose 2.7% year-on-year, slightly below expectations, while core CPI increased 3.1%. Softer inflation data has lifted expectations of a September Fed rate cut, with market odds now at 94%, compared with 86% a day earlier. Fed officials have signalled that multiple cuts may be required to support a cooling economy, further pressuring the greenback.

China Trade Developments Support Aussie

The Australian Dollar also gained support after the US postponed new tariffs on China for 90 days, with Beijing reciprocating by suspending additional duties. The move eased trade tensions and helped underpin AUD demand, given Australia’s close economic ties with China.

Technical Outlook for AUD/USD

On the charts, AUD/USD remains within an ascending channel, with immediate resistance at 0.6580 and psychological resistance at 0.6600. A breakout could push the pair towards July’s high of 0.6625. On the downside, support lies at the nine-day EMA near 0.6511, followed by the 50-day EMA at 0.6501. A break lower could see AUD/USD test recent lows near 0.6419.

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