The Australian Dollar (AUD) lost momentum against the US Dollar (USD) on Monday, retreating after strong gains in the previous session. The AUD/USD pair had advanced more than 1% last week as the greenback weakened, but Monday’s price action saw the currency pair give back some ground. 

This shift comes even as markets increasingly anticipate that the Federal Reserve (Fed) will begin its easing cycle as early as September. Daniel Martins, a broker at Primeber Group, provides a comprehensive breakdown of this topic in this article.

At the same time, expectations surrounding the Reserve Bank of Australia (RBA) suggest that the Australian central bank could pursue more aggressive easing later in the year, potentially delivering a 50 basis-point (bps) rate cut in November. The interplay between diverging monetary policy expectations continues to weigh heavily on the near-term outlook for the AUD/USD pair.

Fed Rate Cut Bets Intensify, but the US Dollar Finds Strength

Markets are closely tracking Fed policy expectations. The CME FedWatch Tool shows traders are pricing in an 87% probability of a 25 bps rate cut at the September meeting, up from 75% before Fed Chair Jerome Powell’s speech at the Jackson Hole Symposium. 

Despite this rising probability of easing, the US Dollar Index (DXY) is holding firm, trading around 97.90 at the time of writing.

Powell struck a cautious tone, acknowledging that risks to the labor market are increasing. However, he emphasized that inflation remains a threat, meaning the Fed is not yet committed to immediate action. Powell also reiterated that policy decisions should not rely solely on estimates of maximum employment, which remain uncertain.

Several Federal Reserve officials have voiced similar, though nuanced, views. Chicago Fed President Austan Goolsbee noted that the September meeting is still undecided due to conflicting economic indicators. 

Meanwhile, Boston Fed President Susan Collins suggested that a rate cut could be possible as early as September, pointing to tariff-related challenges and potential labor market strains, while also cautioning that inflationary pressures remain in the near term.

US Data Offers Contrasting Signals

Recent US economic data has further complicated the Fed’s outlook. The US Initial Jobless Claims rose to 235K, marking an eight-week high and surpassing consensus expectations of 225K. This signals some softening in labor market conditions. At the same time, PMI readings surprised to the upside.

• The S&P Global US Composite PMI for August rose to 55.4, up from 55.1 prior.
• The US Manufacturing PMI jumped to 53.3, significantly higher than both July’s 49.8 and the market consensus of 49.5.
• The US Services PMI slipped slightly to 55.4 from 55.7 but still beat expectations of 54.2.

This combination of strong manufacturing activity and rising jobless claims highlights the Fed’s challenge. On one hand, resilient PMI data signals momentum in business activity. On the other hand, labor market indicators point to slowing employment growth. The divergence keeps the Fed’s path uncertain, even as traders remain confident that easing is imminent.

Technical Analysis: AUD/USD Faces Confluence Resistance

From a technical perspective, the AUD/USD pair is trading near 0.6480. The daily chart suggests the pair is attempting to break above a descending channel pattern, signaling a possible shift from a bearish to a bullish bias.

Key levels to watch:

• Resistance:
  
  • The immediate barrier sits at the 50-day Exponential Moving Average (EMA) around 0.6491, aligned with the channel’s upper boundary near 0.6500.
  • A successful breakout above this zone would reinforce bullish momentum and open the door toward the monthly high at 0.6568 (August 14) and potentially the nine-month high at 0.6625 (July 24).
    
• Support:
  
  • Initial support lies at the nine-day EMA at 0.6477.
  • A break below this would weaken near-term momentum, exposing downside levels at the two-month low of 0.6414 (August 21) and the three-month low of 0.6372 (June 23).

This confluence of support and resistance highlights the pivotal juncture facing the AUD/USD pair. A decisive break above 0.6500 could attract renewed bullish interest, while failure to hold above 0.6477 risks renewed downside pressure.

Conclusion

The Australian Dollar’s slip against the US Dollar on Monday highlights the complex interplay between diverging monetary policy expectations, economic data, and technical price levels. While markets are increasingly confident about a September Fed rate cut, the USD’s resilience underscores ongoing caution. 

Meanwhile, the RBA’s potential for a larger 50 bps rate cut in November keeps downside risks in play for the Australian currency.

With the AUD/USD pair trading near a crucial resistance zone, upcoming US data releases and evolving Fed commentary will likely determine whether the pair extends gains or resumes its downward trajectory. For now, traders remain caught between the Fed’s cautious stance and the RBA’s easing path, making the coming weeks pivotal for the currency pair.