Australian dollar edges lower amid steady US dollar and cautious market sentiment
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Daily Currency Update
Yesterday, the Australian dollar edged slightly lower against the US dollar, closing the session at approximately US$0.6482, down marginally from US$0.6485 the previous day, representing a modest decline of around 0.05%. The dip occurred during a relatively subdued trading session, with little in the way of domestic economic data from Australia to drive market direction.As a result, investor focus shifted to broader global macroeconomic developments, particularly in the United States, where market participants closely watched for signs of slowing economic momentum that could influence the Federal Reserve’s next policy move. Although speculation has been building that the Fed may begin cutting interest rates later this year, the US dollar remained resilient, underpinned by ongoing safe-haven flows and a cautious tone in financial markets.
Meanwhile, commodity prices, especially iron ore, a key Australian export, were largely unchanged, providing limited support for the AUD. Throughout the day, the AUD/USD pair traded within a narrow range, reflecting investor hesitation and a wait-and-see approach ahead of upcoming inflation and labour market data releases.
While the movement was minor, it underscored the Australian dollar’s sensitivity to shifts in global risk sentiment and evolving expectations around central bank policy trajectories.
Key Movers
Overnight, the U.S. Dollar Index (DXY), which measures the dollar's strength against a basket of six major currencies, experienced a modest rebound after a period of decline. The index rose by approximately 0.1%, closing at around 97.88, recovering slightly from a four-week low reached earlier in the session.This uptick reflected a mixed market reaction to comments made by Federal Reserve Chair Jerome Powell, who delivered a somewhat dovish tone during his recent speeches. While Powell indicated that the Fed might begin cutting interest rates as early as September, in response to slowing economic growth and easing inflation pressures, he also acknowledged that inflation remains a concern, tempering market enthusiasm.
The result was a complex dynamic in which investors increased their bets on a rate cut, with the probability of a 25-basis-point reduction in the Fed funds rate rising to around 86%, up from about 70% before Powell’s remarks. This shift supported some dollar strength overnight as traders adjusted their expectations on monetary policy. Meanwhile, the dollar’s recovery was further helped by a slight decline in the euro, which dropped by 0.18% to 1.1699, retreating from its own recent four-week high.
Despite this short-term rebound, the U.S. Dollar Index remains significantly weaker over the course of 2025, down more than 9.5% year-to-date, reflecting broader concerns about a slowing U.S. economy, geopolitical uncertainties and fiscal challenges facing the country.
Looking ahead, investors are closely watching upcoming U.S. economic data releases, particularly inflation figures and employment reports, which will be critical in determining the Fed’s next policy steps and influencing the dollar’s trajectory in the near term. The market remains cautious, balancing hopes of rate cuts with the ongoing risks posed by inflation and global economic conditions.
Expected Ranges
- AUD/USD: 0.6400 - 0.6600 ▼
- AUD/EUR: 0.5500 - 0.5700 ▼
- GBP/AUD: 2.0700 - 2.0900 ▲
- AUD/NZD: 1.0950 - 1.1150 ▲
- AUD/CAD: 0.8850 - 0.9050 ▼