The AUD/USD pair extended its gains on Thursday, reaching a seven-month high near 0.6550. This marked the fourth consecutive trading day of upward momentum. The rise was accompanied by a fall in the US dollar. In addition, it was driven by political indicators of prospective shifts in the leadership of the Federal Reserve. The pair was influenced by mixed inflation figures as well as the Reserve Bank of Australia (RBA) expectedly cutting its interest rate.
Greenback Weakens Amid Fed Leadership Uncertainty
Markets reacted sharply after President Trump said he was close to selecting a replacement for Fed Chair Jerome Powell. The announcement points to a more profound dissatisfaction with the interest rate policy as it stands. Even so, policy might not be directly affected by such a change.
The European session saw a notable drop in the US Dollar Index (DXY). This important metric compares the US dollar to other major currencies. Additionally, it fell to a three-year low close to 97.00. The persistent drop in the value of the US dollar has lifted many currencies, particularly the Australian dollar.
The AUD/USD pair profited from the weakening dollar and surged higher than the 0.6500 level. Analysts caution that a clear break above 0.6555 is not possible in the short term, even with the upward trend. Thus, the traders are holding back for a reliable close above this key resistance level as confirmation.
Inflation Data Shapes Australia’s Monetary Outlook
Investor focus also turned to the RBA, where expectations for lower interest rates are growing. Additionally, a lower inflation rate of 2.1% year over year was reported by the most recent Monthly Consumer Price Index (CPI) for May. This was lower than the previous reading of 2.4% and the forecasts of 2.3%. Thus, these findings have reinforced the case for monetary policy easing to accommodate slowing growth.
According to State Street Global Advisors economists, declining inflation allows the RBA flexibility. “The RBA needs to cut in July to safeguard growth,” they stated. These expectations of a rate cut have caused the Australian dollar to lag behind some of its peers. Additionally, currency traders are keeping a close eye on impending rate and inflation announcements in anticipation of more precise signals.
The pair could test 0.6555 once more, according to analysts. A close above the level would be needed to validate a longer-term bull trend. Meanwhile, in an attempt to stop the upward trend, 0.6505 and 0.6485 may be serving as downside support levels. Even with upward momentum, the market is hesitant to commit to additional gains until there is more widespread confirmation.
Can the AUD/USD Pair Hold Momentum Now
The UOB short-term outlook indicates little upside unless the daily close rises above 0.6555. The pair may gradually rise higher if it fails to break the strong support level at 0.6445. In addition, the longer-term trend will be shaped by the central banks’ individual inflation and interest rate policies. Changing Fed leadership and a dovish RBA might trigger fresh volatility. At present, the AUD/USD cross is still a key measure of global monetary sentiment and risk tolerance.
Final Words
The rise in AUD/USD is a reflection of the changing perception of interest rates and central bank credibility around the globe. The Fed’s path and the RBA’s next move will determine a lot, despite the fact that the Australian dollar is strengthening. As a result, investors should prepare for higher volatility in the days ahead, centered around 0.6555.
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