Australian dollar strengthens as RBA’s policy stance and jobs outlook lift sentiment

Key Movers

The US dollar (USD) traded on a cautious note on Wednesday as investors grew increasingly confident that the Federal Reserve (Fed) could begin lowering interest rates as early as its December policy meeting. At the time of writing, the US Dollar Index (DXY) — which measures the Greenback’s performance against a basket of six major currencies — hovered near its weekly low of around 99.30, a level last touched on Tuesday. Market sentiment has shifted notably in recent days, as softer economic data and easing inflation pressures have prompted traders to reassess the Fed’s policy outlook. According to the CME FedWatch Tool, market participants now assign a 68% probability that the central bank will deliver a 25-basis-point (bps) rate cut in December, lowering the federal funds rate target range to 3.50%–3.75%. This is up from a 62.4% chance seen at the start of the week, reflecting growing conviction that the Fed’s tightening cycle has reached its end. Recent economic releases have supported the case for monetary easing. Consumer price inflation has continued to moderate, while retail sales and manufacturing output have shown signs of slowing. Additionally, labour market data indicate that hiring momentum is cooling, with job openings and wage growth both easing. Together, these factors suggest that inflationary pressures are subsiding without triggering a sharp downturn — a scenario that could allow the Fed to gradually unwind its restrictive stance in the coming months. However, policymakers remain cautious. Several Fed officials have reiterated that any decision to cut rates will depend on sustained evidence that inflation is moving convincingly toward the 2% target. The central bank has also emphasised that premature easing could risk reigniting price pressures, especially if consumer demand remains resilient through the holiday season. In the broader market, a weaker US dollar has lent support to major peers such as the euro, the British pound, and the Australian dollar, all of which have gained modestly in recent sessions. Lower US Treasury yields have further weighed on the Greenback’s appeal, with investors seeking higher returns in risk-sensitive assets. Looking ahead, traders will focus on upcoming US inflation and retail sales figures for additional clues on the Fed’s next move. A continuation of the soft economic trend would likely reinforce expectations of a December rate cut, keeping the USD on the defensive in the near term.