The Australian Dollar is currently experiencing upward momentum against the US Dollar, largely driven by improved risk sentiment as investors anticipate the Federal Reserve’s interest rate decision. This marks the third consecutive day of gains for the AUD/USD pair. With expectations rising for a potential 50 basis points cut in rates from the Fed, risk-sensitive currencies like the Australian Dollar are seeing increased support. Additionally, the Reserve Bank of Australia’s (RBA) assertive monetary policy stance has contributed to the AUD’s strength, highlighting concerns about persistent inflation, which officials believe precludes any consideration of rate cuts in the near term.
Anticipating a decision from the Federal Reserve, market forecasts indicate a 67% likelihood that the Fed may reduce interest rates by 50 basis points at its upcoming meeting, a significant increase from the previous day’s estimates. Currently, the Fed maintains a steady interest rate range of 5.25% to 5.5%, which has been in place since July 2023. This dovish outlook is encouraging for risk-oriented assets, providing a foundation for the Australian Dollar’s upward movement.
On the economic front, U.S. retail sales experienced a modest increase of 0.1% in August, which surpassed predictions of a slight decline. This resilience in consumer spending signifies a somewhat stable economic environment despite broader uncertainty. Conversely, Australia’s consumer inflation expectations have eased slightly, reflecting the ongoing challenge for the RBA to manage inflation while supporting the labor market.
Technical analysis suggests that the AUD/USD pair is currently trading around 0.6760, positioned below the lower edge of a rising wedge pattern, which could signal a potential bearish reversal. However, with the Relative Strength Index remaining above 50, a bullish trend is still in play. Should the pair re-enter the rising wedge pattern, there is a significant resistance level at 0.6798, followed by the psychological barrier of 0.6800, while support levels are identified at 0.6730 and 0.6700.
