The Australian Dollar (AUD) extended its gains for a second consecutive session on Monday as the US Dollar (USD) held steady amid a dovish sentiment surrounding the Federal Reserve (Fed) outlook. The AUD/USD pair remains underpinned by positive Australian employment data, which reduced the urgency for additional Reserve Bank of Australia (RBA) rate cuts in September.
Meanwhile, the USD faces potential downside risks as recent US economic indicators bolster expectations for a Fed rate cut. This article by Amara Johns, a top broker at AureliusHub, explores the topic from multiple angles, providing a complete overview.
AUD Strengthens on Positive Australian Jobs Data
The Australian employment report for July revealed a net employment change of 24.5K, up from a revised 1K in June, narrowly missing the consensus forecast of 25K. The unemployment rate declined to 4.2%, matching expectations and highlighting resilience in the labor market.
These figures alleviated concerns about a weakening domestic economy, reducing the immediate pressure on the RBA to deliver another 25 basis points (bps) cut after its August meeting, where the Official Cash Rate (OCR) was lowered to 3.6% from 3.85%.
US Dollar Faces Pressure Amid Dovish Fed Outlook
The US Dollar Index (DXY), which measures the USD against six major currencies, traded around 97.90, holding ground after the previous session’s losses. Market participants are weighing the implications of mixed US economic data.
The Michigan Consumer Sentiment Index for August fell to 58.6 from 61.7 in July, below the expected 62.0, indicating a softer consumer confidence environment.
Meanwhile, US Retail Sales rose 0.5% month-over-month in July, in line with expectations but down from June’s 0.9% gain. The Retail Sales Control Group also grew by 0.5%, slightly lower than prior readings.
These data points suggest that while some economic activity remains robust, consumer sentiment has weakened, supporting expectations for the Federal Reserve to consider a rate reduction in September. US Treasury Secretary Scott Bessent stated that short-term interest rates may need to be 1.5-1.75% lower than the current benchmark rate of 4.33%, reinforcing market speculation of a potential 50 bps cut.
Additionally, geopolitical developments, including expanded US steel and aluminum tariffs and ongoing US-China trade discussions, add uncertainty to the USD outlook. Slower Chinese retail growth of 3.7% YoY in July and slightly lower industrial production at 5.7% YoY further complicate global trade dynamics, potentially influencing FX market sentiment.
Technical Outlook for AUD/USD
From a technical analysis perspective, the AUD/USD pair is trading near 0.6510 on Monday. After breaking above the nine-day Exponential Moving Average (EMA), the pair shows signs of short-term bullish momentum. The 14-day Relative Strength Index (RSI) is positioned around 50, indicating a neutral market bias with potential for directional clarity in the near term.
The pair is attempting to return to an ascending channel pattern, which would reinforce a bullish bias and open the path toward the monthly high of 0.6568, recorded on August 14. A sustained break above this level may see the AUD/USD approaching the upper boundary of the channel around 0.6610, with the nine-month high at 0.6625 serving as a key resistance target.
On the downside, immediate support is observed at the nine-day EMA near 0.6512, followed by the 50-day EMA at 0.6503 and the psychological level of 0.6500. A decisive break below this support zone could undermine both short- and medium-term momentum, potentially pushing the pair toward the two-month low of 0.6419, recorded on August 1.
Outlook and Market Implications
The Australian Dollar is benefiting from a combination of resilient domestic data and an increasingly dovish Federal Reserve stance, creating a favorable backdrop for continued gains against the USD. Market participants will closely monitor the RBA’s next policy meeting and US economic releases, including inflation data and employment reports, for clues on the next potential rate move.
Global factors, such as trade tensions and geopolitical developments, may continue to drive FX volatility, with the AUD/USD pair serving as a key barometer for risk sentiment. Technical patterns suggest that short-term momentum favors the bullish side, but traders should remain alert to support levels and broader macroeconomic indicators to manage exposure effectively.
Conclusion
The Australian Dollar is poised to maintain strength as the odds of additional Fed rate cuts increase, supported by robust Australian labor data and a cautiously dovish Fed outlook. Both technical indicators and fundamental factors suggest that the AUD/USD may continue to test resistance levels, with key support levels providing a floor amid ongoing market uncertainty.
