The Australian Dollar (AUD) extended its winning streak against the US Dollar (USD) on Tuesday, climbing for a third consecutive session as shifting monetary policy expectations and mixed economic data shaped investor sentiment. Alex Tonoyan, a broker at Nabotex Group, provides a comprehensive breakdown of this topic in this article.
The AUD/USD pair appreciated following the release of Australia’s Westpac Consumer Confidence index, which fell by 3.1% to 95.4 in September from 98.5 in August, highlighting persistent concerns about the nation’s economic outlook.
Despite the decline in sentiment, the Australian currency received support from stronger-than-expected trade, growth, and inflation data, while the US Dollar continued to lose ground on a dovish Federal Reserve (Fed) tone and increasing bets on upcoming rate cuts.
Consumer Confidence Weakens, but AUD Holds Firm
The drop in Westpac Consumer Confidence underscores households’ cautious stance amid higher living costs and uncertain employment prospects. Matthew Hassan, Head of Australian Macro-Forecasting at Westpac, emphasized that consumer recovery since mid-2024 has been “sluggish,” suggesting that additional Reserve Bank of Australia (RBA) policy easing could still be on the horizon.
Hassan anticipates a 25 basis-point (bps) rate cut in November, followed by two additional cuts in 2026.
Nevertheless, the AUD retained support due to the July trade surplus, Q2 GDP expansion, and hotter-than-expected inflation prints. Swaps data now indicate an 84% probability that the RBA will leave policy unchanged in September, while the likelihood of a November rate cut has dropped to 80% from 100%.
This reduced dovish pricing limits downside pressure on the currency, cushioning the impact of soft confidence data.
Stronger Domestic Fundamentals
Australia’s Trade Balance widened to 7,310 million in July, up from 5,366 million in June and well above expectations for a decline to 4,920 million. The larger surplus reflected robust demand for commodities, which remain a central driver for the AUD.
Meanwhile, the Gross Domestic Product (GDP) expanded 0.6% quarter-over-quarter in Q2, outpacing both Q1’s 0.3% growth and consensus estimates of 0.5%. On an annualized basis, GDP rose 1.8%, also beating expectations of 1.6%.
Additionally, the Monthly Consumer Price Index (CPI) climbed 2.8% year-over-year in July, stronger than both the prior 1.9% print and the forecast of 2.3%. Hotter inflation readings have tempered aggressive RBA rate cut bets, making the Australian Dollar more resilient despite weak consumer sentiment.
US Dollar Faces Pressure as Fed Turns Dovish
In contrast, the US Dollar Index (DXY) traded around 97.40, pressured by rising expectations that the Federal Reserve will cut rates at its September policy meeting. According to the CME FedWatch tool, markets are pricing in nearly a 90% probability of a 25 bps rate cut, up from 86% last week. Bets for a larger 50 bps reduction have also gained traction.
This dovish repricing followed disappointing US labor market data. The Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) grew by only 22,000 in August, far below expectations of 75,000, and down from a revised 79,000 in July.
The Unemployment Rate climbed to 4.3%, while Average Hourly Earnings increased 0.3% month-over-month, matching forecasts.
Technical Analysis: AUD/USD Outlook
The AUD/USD pair traded near 0.6590 on Tuesday, moving within a well-defined ascending channel on the daily chart. The pair’s positioning above the nine-day Exponential Moving Average (EMA) at 0.6551 reflects short-term bullish momentum.
Upside Levels:
- The next key resistance lies at the upper boundary of the channel near 0.6620.
- A break above would open the path toward the 10-month high of 0.6625 (July 24).
- Sustained momentum could drive the pair toward the 11-month high of 0.6687, recorded in November 2024.
Downside Levels:
- Initial support rests at the nine-day EMA of 0.6551, aligned with the channel’s lower boundary around 0.6540.
- A break below could expose the 50-day EMA at 0.6511, undermining bullish sentiment.
- Further weakness may drag the pair toward the three-month low of 0.6414, registered on August 21.
Outlook
The Australian Dollar’s advance reflects a combination of resilient domestic fundamentals and external pressures weighing on the US Dollar. While falling consumer confidence signals headwinds for household demand, stronger trade, GDP, and inflation data reinforce the case for near-term policy stability by the RBA, limiting downside risks for the AUD.
From a technical perspective, the AUD/USD remains supported within its bullish channel, with momentum favoring a test of key resistance levels. Unless the pair breaks decisively below the 0.6540–0.6510 support zone, the Australian Dollar appears poised to extend its gains against the weakening Greenback in the near term.
