The Australian dollar (AUD) saw an increase against the US dollar (USD) on Thursday, marking its fifth consecutive session of gains. The rise in the AUD/USD pair comes as the USD faces challenges, particularly with growing expectations of a Federal Reserve rate cut in December.
According to the Australian Bureau of Statistics (ABS), private capital investment witnessed a 6.4% rise in the third quarter, up from a mere 0.2% in the second quarter and surpassing the anticipated 0.5% growth. Additionally, ABS released its first “complete” monthly consumer price index (CPI) report on Wednesday, showing a year-on-year increase of 3.8% in October, which was higher than the market expectation of 3.6% and the previous 3.5% figure.
The strengthening of the Australian dollar is partly attributed to the initial monthly CPI indicating a cautious sentiment regarding the Reserve Bank of Australia’s (RBA) policy direction. The RBA is likely to maintain the official cash rate (OCR) at 3.6% in December, as inflation remains above the target range of 2-3%. Despite a slight uptick in the unemployment rate, RBA officials observed a healthy jobs market, which they expect to continue.
As of November 26, trading on the ASX 30-day interbank cash rate futures was at 96.41 for the December 2025 contract, suggesting a 6% probability of the RBA cutting the cash rate from 3.60% to 3.35% during its next meeting.
US dollar dips as Fed rate cut expectations increase
- The US Dollar Index (DXY), reflecting the USD’s value against six major currencies, has stagnated around 99.50. The dollar’s decline intensified with growing expectations for a more accommodating monetary policy, particularly after reports emerged that the White House might choose Kevin Hassett, the Chairman of the National Economic Council, for the next Federal Reserve Chairman. Investors believe he aligns with President Trump’s inclination for low interest rates.
- Currently, markets are pricing in an over 84% likelihood of a 25 basis point (bps) cut to the Fed’s benchmark overnight borrowing rate at the upcoming December meeting, a significant increase from just 30% a week prior, based on data from the CME FedWatch tool.
- The U.S. Department of Labor (DOL) reported on Wednesday that new jobless claims numbered 216,000 for the week ending Nov. 22, a decrease of 6,000 from the revised figure of the previous week, exceeding expectations of 225,000. The four-week moving average also saw a slight reduction, down 1,000 to 223,750.
- In September, the U.S. producer price index (PPI) remained constant at 2.7% year-on-year, matching forecasts as well as August readings, indicating stabilization in inflationary pressures. Core PPI, however, dropped to 2.6% from 2.9%, falling below the expected 2.7%.
- Retail sales in the U.S. climbed 0.2% month-on-month for September, down from a 0.6% rise in August, highlighting a more cautious approach in consumer spending. At the same time, the Conference Board reported a notable decline in consumer sentiment, with the consumer confidence index sliding 6.8 points to 88.7 in November from 95.5 in October.
- Fed Director Christopher Waller voiced concerns on FOX Business regarding a weakening labor market, stating inflation is “not a big problem” considering recent labor market slowdowns. He remarked that September’s payroll figures might see downward revisions and indicated that concentrated hiring isn’t positive, suggesting support for short-term interest rate cuts.
- New York Fed President John Williams mentioned that policymakers could cut interest rates “in the near term,” comments that bolster the market’s expectations of a December rate cut. Fed Director Stephen Millan echoed this sentiment, asserting that the employment data justified a rate cut in December and that he would support a 25 bps reduction if he had a conclusive vote.
- Australia’s preliminary S&P Global Manufacturing Purchasing Managers Index (PMI) for November stood at 51.6, up from 49.7, while the services PMI also rose slightly to 52.7 from 52.5. This resulted in an overall PMI increase to 52.6 from 52.1.
- Minutes from last week’s RBA monetary policy meeting indicated a balanced policy stance, suggesting that if future data turns out stronger than expected, the cash rate could remain unchanged for an extended period.
- RBA Assistant Governor Sarah Hunter noted that persistent above-trend growth might elevate inflationary pressures, and emphasized that the bank refrains from reacting to one-off monthly inflation figures, underscoring their careful monitoring of labor market conditions.
Australian dollar surpasses 9-day EMA and nears the 0.6600 mark
The AUD/USD pair was trading around 0.6530 on Thursday. Analysis of the daily chart shows the pair within a rectangular consolidation zone, which suggests a neutral sentiment. The pair is positioned above its 9-day exponential moving average (EMA), hinting at near-term upward momentum.
It’s likely the AUD/USD pair will attempt to move towards the upper boundary of the rectangle around 0.6630.
If it retreats, the pair might approach the psychological level of 0.6500, aligning with the 9-day EMA at 0.6495. A breach below this support area could lead the AUD/USD to test the lower boundary around 0.6420, eventually revisiting the five-month low of 0.6414 recorded on August 21st.
