The Australian Dollar (AUD) held firm against the US Dollar (USD) on Friday, consolidating after two straight sessions of gains. The AUD/USD pair traded near 0.6660, supported by risk-on sentiment and rising bets of a Federal Reserve (Fed) rate cut next week. Softer US labor data has overshadowed hotter inflation, with investors also raising the probability of a larger 50-basis-point move by the Fed.
Domestic support for the Aussie
Stronger Australian fundamentals limited downside risks. Robust economic data has reduced the likelihood of further Reserve Bank of Australia (RBA) easing, with swaps pricing in an 86% chance that the central bank will keep policy unchanged in September. September’s Consumer Inflation Expectations jumped to 4.7% from 3.9%, reflecting firmer demand pressures. RBA Governor Michele Bullock said the private sector is showing “a little bit more growth,” a sign she described as positive for the economy.
US jobs data, inflation, and Fed outlook
In the US, weekly Initial Jobless Claims rose to 263K, the highest since October 2021, well above expectations. Combined with last week’s weak Nonfarm Payrolls report, the data strengthened bets on multiple Fed cuts this year—markets now expect three reductions. While the August CPI reading came in hotter at 2.9% year-on-year, producer prices cooled sharply, with the PPI falling to 2.6% from 3.3%. A downward benchmark revision from the Bureau of Labor Statistics (BLS) also suggests the labor market is weaker than previously estimated.
The US Dollar Index (DXY) recovered modestly, trading around 97.60, ahead of the University of Michigan Consumer Sentiment release later in the day.
China’s inflation and regional implications
China’s CPI dropped 0.4% year-on-year in August, weaker than expected. With China being Australia’s largest trading partner, persistent weakness in Chinese demand could weigh on the Aussie in the medium term. Meanwhile, Westpac Consumer Confidence slipped to 95.4 in September, reflecting sluggish household recovery, which some analysts argue may eventually push the RBA toward easing in late 2025.
Technical outlook
AUD/USD continues to trade within an ascending channel on the daily chart, reinforcing the bullish bias. The pair remains above the nine-day Exponential Moving Average (EMA) at 0.6598, supporting short-term momentum. Immediate resistance lies at 0.6680, followed by November 2024’s high at 0.6687 and the psychological 0.6700 barrier. On the downside, a break below 0.6560 (channel support) would weaken the outlook and open the door toward the 50-day EMA at 0.6524.
