The Australian Dollar (AUD) extended its upward trajectory for the third consecutive session on Wednesday, trading around 0.6510 against the US Dollar (USD). The gains are supported by a combination of softer-than-expected inflation, easing geopolitical tensions, and mixed signals from the US Federal Reserve.
Australia’s Inflation Slows, Fueling RBA Rate Cut Bets
Australia’s Monthly Consumer Price Index (CPI) rose 2.1% YoY in May, below estimates of 2.3% and down from April’s 2.4%. This was the first inflation slowdown in three months, where inflation readings were flat. Consumer Price Index Margins Recently released weak GDP data, coupled with the softer CPI, support market pricing for a July rate cut of 25 basis points (bps), with an 80% probability. Primary traders in the Australian cash rate spots are pricing in a total of 73 bps in cuts by the end of the year was also a dovish move in the overnight cash spread.
Ceasefire Between Israel and Iran Boosts Risk Appetite
Global risk sentiment improved after US President Donald Trump confirmed a ceasefire between Israel and Iran following a twelve-day conflict. While there were still uncertainties around the viability of the ceasefire and Iran’s nuclear program, the announcement nevertheless triggered a risk-on rally that saw the US Dollar Index (DXY) push down to 97.90.
With the Australian Dollar (AUD) being a risk-sensitive currency, the market saw an opportunity to pivot away from safe-haven assets into risk assets, which the AUD benefited from.
Fed Divided on Rate Cut Timing
In the United States, Federal Reserve Chair Jerome Powell emphasized a cautious message, implying rate cuts may not come until the fourth quarter, and warned about inflation from tariffs in June.
However, there was a softer tone from other Fed officials, for example, Christopher Waller, and Michelle Bowman suggested rate cuts could come as early as July and assessed risk on the labor market was rising. The divergence is making the US Dollar weaker, and helping to bolster the AUD/USD currency pair..
Technical Analysis
AUD/USD is presently trading around 0.6510 and is positioned above the 9-day Exponential Moving Average (EMA) at 0.6486. The 14-day Relative Strength Index (RSI) remains above 50, suggesting a moderately positive momentum.
Optically, resistance sits at 0.6552, the seven-month high on June 16, followed the 0.6570 at the upper boundary of the channel. The main areas of support are the 9-day EMA at 0.6486, the lower edge of the channel around 0.6450, and the 50-day EMA at 0.6438.
Conclusion
With some easing of global tensions, a dovish RBA, and mixed signals from the Fed policy, the AUD/USD may trend higher. Traders should keep a close eye on Powell’s testimony and what happens in the Middle East diplomatic front. If we can sustain an upward move past 0.6550, we may see additional upside.
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