Australian dollar edges higher as fed rate cut bets weigh on US dollar
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Daily Currency Update
Overnight, the Australian dollar (AUD) posted a modest gain against the US dollar (USD), strengthening by around 0.11% to trade near US $0.6474 by the close of the session. This slight appreciation followed broad-based weakness in the US dollar, as market sentiment shifted on growing speculation that the Federal Reserve (Fed) may begin cutting interest rates sooner than previously expected. The shift was driven by signs of cooling in the US labour market and persistent uncertainty surrounding the economic outlook and potential trade policy changes. As a result, investors reduced exposure to the greenback, providing support to risk-sensitive currencies like the AUD. Despite the absence of major domestic data releases from Australia overnight, the AUD benefited from the global move away from the USD. Looking ahead, the outlook for the AUD remains cautiously optimistic, with the pair trading near the key US$0.6500 level. The currency continues to gain support from a softer US dollar, underpinned by expectations of Fed rate cuts amid slowing US economic momentum. Domestically, attention turns to Australian inflation data, which could influence the Reserve Bank of Australia’s (RBA) policy stance. A stronger-than-expected reading would likely lift the AUD, while a softer print may weigh on it. In the US, upcoming factory orders data and commentary from Fed officials could also shape market sentiment. If US data disappoints, it may reinforce the US dollar’s downward trajectory, supporting further AUD gains. Overall, the bias remains slightly bullish for the AUD today, as long as it holds above key technical support around US$0.6450.Key Movers
Overnight, the US Dollar Index (DXY) experienced a modest decline, slipping by approximately 0.07% as market participants adopted a cautious stance amid growing concerns about the US economic outlook. The slight pullback reflected mounting worries over the risk of stagflation, with recent data pointing to stagnant activity in the services sector alongside rising input costs, driven in part by ongoing tariff pressures. Adding to the uncertainty, investors awaited President Trump’s decision on a replacement for an upcoming vacancy on the Federal Reserve’s Board of Governors, a move that could influence the central bank’s future policy direction. Despite these headwinds, the US dollar remained relatively stable, supported by persistent expectations of Federal Reserve easing, with markets currently pricing in an 86.5% probability of a rate cut in September. Overall, the DXY’s subdued overnight performance signals that investors are digesting a complex mix of economic data and policy signals, maintaining a cautious approach as they await clearer direction on US monetary policy. Overnight, US stocks posted solid gains as investor sentiment was buoyed by a combination of strong corporate news and growing expectations of Federal Reserve easing. The S&P 500 advanced by 0.7%, closing at 6,345.06, supported notably by Apple’s announcement of a substantial $100 billion investment plan in the US over the next four years. This bold move boosted confidence in the technology sector and the broader market. The Nasdaq Composite outperformed with a 1.2% gain, closing at 21,169.42, driven largely by a 5.75% surge in Apple’s stock price, which helped lift tech shares across the board. Meanwhile, the Dow Jones Industrial Average rose a more modest 0.2%, finishing at 44,193.12, reflecting mixed performances among industrial and blue-chip stocks. The Russell 2000 index, which tracks small-cap stocks, slipped slightly by 0.2%, indicating some caution among investors in smaller companies amid ongoing macroeconomic uncertainties.Expected Ranges
- AUD/USD: 0.6400 - 0.6600 ▲
- AUD/EUR: 0.5500 - 0.5700 ▲
- GBP/AUD: 2.0400 - 2.0600 ▼
- AUD/NZD: 1.0850 - 1.1050 ▲
- AUD/CAD: 0.8800 - 0.9000 ▼