Australian dollar holds steady as US dollar softens ahead of Fed decision
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Daily Currency Update
The Australian Dollar (AUD) is holding steady after four consecutive days of gains, with the AUD/USD pair poised for further upside as the US dollar (USD) weakens amid growing expectations of a Federal Reserve (Fed) rate cut at the September meeting. US markets will remain closed on Monday in observance of the Labor Day holiday. Despite recent strength, the AUD/USD pair has retreated slightly following the release of Australia’s latest Building Permits data. Figures showed an 8.2% month-over-month decline in July, significantly worse than the expected 4.8% drop, and a sharp reversal from the previous month’s 11.9% gain. On an annual basis, building permits rose 6.6%, easing from a strong 27.4% increase previously. In China, key economic indicators showed signs of improvement. The Caixin Manufacturing Purchasing Managers’ Index (PMI) rose to 50.5 in August from 49.5 in July, marking a return to expansion territory. As China is Australia’s largest trading partner, signs of stabilization in the Chinese economy often support the Aussie dollar. However, official data from China’s National Bureau of Statistics (NBS) offered a mixed picture. The NBS Manufacturing PMI edged up to 49.4 in August from 49.3 in July but remained below the 50.0 threshold, indicating contraction for a fifth consecutive month. In contrast, the NBS Non-Manufacturing PMI rose to 50.3, slightly above July’s 50.1 and matching market expectations.Key Movers
The US Dollar Index (DXY) remains under pressure, trading lower for the fifth consecutive day as it probes critical support levels around 97.61/52. These levels have withstood multiple tests so far, providing solid technical support, but the dollar’s bearish momentum persists amid rising market expectations for a Federal Reserve rate cut in September. The latest dovish signals from Fed policymakers have further weakened the greenback’s appeal. Recent comments from two Fed officials emphasized a cautious outlook, reinforcing speculation that the central bank may pivot toward easing monetary policy sooner than previously anticipated. This shift in sentiment is compounded by recent political turbulence in Washington, including former President Trump’s controversial attempt to remove Fed Governor Christopher Waller and a court ruling declaring most of Trump’s tariffs illegal. These developments have added to the uncertainty weighing on the dollar. Despite the current softness, investors are expected to exercise caution ahead of key US economic data scheduled for release this week, particularly the August labor market report. This data will be closely scrutinized for clues on the health of the US economy and to gauge the Federal Reserve’s likely policy path at its upcoming September meeting. Recent labor market indicators have pointed to a notable slowdown in hiring and wage growth over the past few months—a trend that has become the Fed’s primary concern. Fed Chair Jerome Powell has indicated that while inflation remains elevated, it is likely a temporary phenomenon. The central bank’s ability to confidently shift from tightening to potentially easing policy will depend heavily on whether the labor market data supports a sustained cooling in economic activity. Overall, the dollar’s near-term direction hinges on these pivotal economic releases, as markets balance ongoing geopolitical risks and shifting expectations around US monetary policy.Expected Ranges
- AUD/USD: 0.6450 - 0.6650 ▲
- AUD/EUR: 0.5500 - 0.5700 ▲
- GBP/AUD: 2.0600 - 2.0800 ▼
- AUD/NZD: 1.1000 - 1.1200 ▲
- AUD/CAD: 0.8900 - 0.9100 ▲