Australian Dollar climbs as prospects for a larger Fed rate cut increase

• Australian Dollar appreciates amid rising odds of a 50 basis-point Fed rate cut next week.
• The AUD receives support as the RBA is expected to leave policy unchanged in September.
• Traders await the Michigan Consumer Sentiment Index for September due on Friday.

The Australian Dollar (AUD) advances against the US Dollar (USD) on Friday, extending its gains for the third successive session. The AUD/USD pair continues to appreciate as soft United States (US) jobs data outweighs hotter inflation, bolstering expectations of a Federal Reserve (Fed) 25 basis-point rate cut next week. The chance that the US central bank will cut by a half percentage point also edges higher.

The AUD found support as recent robust Australian economic data reduced prospects of further Reserve Bank of Australia (RBA) rate cuts, with swaps now pricing in an almost 86% chance of unchanged policy in September.

Australia's Consumer Inflation Expectations rose to 4.7% in September from August's five-month low of 3.9%. The increase reflected stronger domestic demand, which in turn heightened concerns over renewed inflationary pressures. RBA Governor Michele Bullock highlighted that the private sector has begun to show "a little bit more growth," which she described as positive for the economy.

Australian Dollar gains ground due to priced-in a Fed rate cut next week

• The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is recovering ground and trading around 97.60 at the time of writing. The release of the University of Michigan Consumer Sentiment Index will be the highlight later on Friday.
• US Consumer Price Index (CPI) climbed 2.9% year-over-year in August, as expected, but came in higher than 2.7% in July. On a monthly basis, the CPI inflation climbed to 0.4% from a 0.2% increase prior. The core CPI, which excludes volatile food and energy prices, increased 3.1% on a yearly basis in August, matching the estimate.
• US Initial Jobless Claims rose to 263K, the highest since 2021, against the expected 235K and 236K prior (revised from 237K).
• The US Bureau of Labor Statistics (BLS) reported on Wednesday that the US PPI inflation declined to 2.6% on a yearly basis in August from 3.3% in July. This figure came in below the market consensus of 3.3%. On a monthly basis, the PPI declined by 0.1% in August, compared to the 0.7% increase (revised from 0.9%) prior.
• According to the US Bureau of Labor Statistics (BLS), the preliminary estimate of the Current Employment Statistics (CES) national benchmark revision suggests total Nonfarm employment for March 2025 will likely be revised down by 911,000, or about 76,000 fewer jobs per month, signaling a weaker labor market than previously estimated. The final benchmark revision will be issued in February 2026 with the publication of the January 2026 Employment Situation news release," the BLS noted in its press release.
• China's Consumer Price Index (CPI) declined 0.4% year-over-year in August after arriving at 0% in July. The market consensus was for a 0.2% decline in the reported period. The monthly CPI inflation came in at 0% versus the previous 0.4% and the expected 0.1% increase. Any Chinese economic change could impact the AUD as China and Australia are close trading partners.
• Matthew Hassan, Head of Australian Macro-Forecasting, noted that consumer recovery since mid-2024 has been sluggish, following a decline in Westpac Consumer Confidence to 95.4 in September from 98.5 in August. Hassan indicated that further policy easing may be required, projecting a 25-basis-point RBA rate cut in November, followed by two additional reductions in 2026.

Australian Dollar targets confluence around 0.6700 barrier

AUD/USD is trading around 0.6660 on Friday. The technical analysis of the daily chart shows the pair moves upwards within the ascending channel pattern, strengthening the bullish bias. Additionally, the pair is positioned above the nine-day Exponential Moving Average (EMA), indicating short-term price momentum is stronger.

On the upside, the AUD/USD targets the upper boundary of the ascending channel around 0.6680, followed by the 11-month high of 0.6687, recorded in November 2024, and a psychological barrier of 0.6700.

The initial support lies at the nine-day EMA of 0.6598, followed by the ascending channel's lower boundary around 0.6560. A break below the channel would weaken the bullish bias and prompt the pair to test the 50-day EMA at 0.6524.

AUD/USD: Daily Chart