Aussie dollar trades slightly high reflecting a broader trend of USD weakness
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Daily Currency Update
Over the past week, the Australian dollar (AUD) experienced a modest appreciation against the US dollar (USD), reflecting a broader trend of USD weakness driven by softer-than-expected US economic data and shifting expectations around Federal Reserve interest rate cuts. The upside faces strong resistance from a descending trendline and the 0.6500 psychological barrier, a level that has repeatedly capped gains this month. At the same time, the Aussie is drawing additional strength from encouraging signals on the global trade front. China’s Foreign Ministry confirmed that Beijing and Washington have agreed to maintain open communication channels following a high-level diplomatic exchange. Local Markets are betting on further interest rate cuts to come, after the Reserve Bank took the knife to the cash rate at its May meeting. While markets had almost entirely priced in the quarter of a percentage point cut to 3.85 per cent in May, the board's post-meeting statement was considered more dovish than some had expected. We expect the RBA to cut again in August, November, and February next year taking the cash rate to 3.1 per cent. According to LSEG data, market pricing shifted towards a 60 per cent probability of another cut in July, with a 0.25 percentage point reduction fully priced in by August, and a 3.1 per cent cash rate seen as the likely end point this cycle.Key Movers
Over the past week, the U.S. dollar experienced notable volatility, influenced by a combination of fiscal developments, credit rating downgrades, and trade policy announcements. The U.S. dollar Index (DXY) decreased by approximately 0.85% during the week ending May 23, 2025, closing at 99.11. This marks a continuation of the downward trend observed since early May. Moody's downgraded the U.S. government's credit rating from Aaa to Aa1, citing concerns over rising government debt and interest payment ratios. This downgrade contributed to a decline in investor confidence and a weakening of the dollar. The U.S. House of Representatives approved a significant tax and spending bill, projected to add $3.8 trillion to the national debt over the next decade. This raised concerns about fiscal sustainability, leading to a sell-off in U.S. bonds and further pressure on the dollar. President Trump's announcement of new tariffs, including a 50% levy on European goods and a potential 25% tariff on foreign-manufactured smartphones, introduced uncertainty into global markets. These measures led to a decline in both European and U.S. stocks and added to the downward pressure on the dollar.Expected Ranges
- AUD/USD: 0.6400 - 0.6600 ▲
- AUD/EUR: 0.5600 - 0.5800 ▲
- GBP/AUD: 2.0700 - 2.0900 ▼
- AUD/NZD: 1.0750 - 1.0950 ▼
- AUD/CAD: 0.8800 - 0.9000 ▲