Australian Dollar (AUD) extended its rally for the third consecutive session on Thursday, buoyed by stronger domestic fundamentals and mounting uncertainty surrounding the US Federal Reserve (Fed). Fresh signs of resilience in Australia’s private capital investment and hotter-than-expected inflation data gave the Aussie a lift, while political and policy turmoil in the United States kept the US Dollar (USD) under pressure.
With traders now eyeing US GDP figures and the PCE Price Index, the AUDUSD pair is well-positioned to capitalize on shifting market dynamics heading into the next trading sessions.
Australia’s Q2 Data Supports the Australian Dollar
Australia’s Private Capital Expenditure (CapEx) rose 0.2% in the second quarter, reversing a 0.1% decline in Q1. While the increase fell short of market expectations of 0.7% growth, the return to positive investment momentum highlights underlying resilience in business confidence despite global headwinds.
Adding to the bullish tone, Monthly Consumer Price Index (CPI) data released earlier this week showed a 2.8% year-over-year increase in July, beating both the 2.3% forecast and June’s 1.9% gain. This hotter-than-expected inflation print has tempered immediate expectations of a Reserve Bank of Australia (RBA) rate cut, providing a fundamental tailwind for the currency.
RBA Maintains Cautious Flexibility
Despite positive data, the RBA’s August meeting minutes signaled that policymakers still expect “some further reduction in the cash rate” over the next year, depending on incoming data and global risks. While the central bank is unlikely to raise rates in the near term, the strength in inflation and business investment could delay or soften the pace of any future cuts.
For traders, this means the AUDUSD pair may continue to enjoy fundamental support, particularly if subsequent data reinforces the view that the Australian economy remains resilient despite external challenges.
US Dollar Struggles Under Political Pressure
The US Dollar Index (DXY) hovered around 98.10, reflecting market jitters following an unprecedented move by President Donald Trump to remove Fed Governor Lisa Cook from the board. This historical first has deepened concerns over the Fed’s independence, fueling expectations of more aggressive easing in the months ahead.
Market pricing via the CME FedWatch Tool now reflects an 88% probability of at least a 25-basis-point rate cut in September, up from 82% a week ago. Trump’s nomination of Stephen Miran to a temporary seat and speculation about David Malpass as a permanent replacement are adding another layer of policy uncertainty to an already volatile landscape.
Global Trade Tensions Keep Risk Appetite in Check
China’s ongoing efforts to ramp up production of artificial intelligence chips, reported by the Financial Times, signal a push for technological self-reliance. However, tensions remain high after Trump threatened 200% tariffs on Chinese goods if Beijing fails to supply critical magnets to the US.
Given Australia’s deep trade ties with China, any escalation in the trade dispute could create volatility for the AUD, potentially offsetting some of the currency’s domestic-driven gains. Traders will be closely monitoring these developments as they position ahead of key economic releases.
Key US Data to Watch
Looking ahead, attention shifts to critical US economic data:
US Q2 GDP Annualized – Scheduled for release later Thursday, offering fresh insights into growth momentum.
July PCE Price Index – The Fed’s preferred inflation gauge, due Friday, will be pivotal in shaping market expectations for the September policy meeting.
A weaker-than-expected showing in these indicators could accelerate USD weakness, potentially driving AUDUSD toward fresh highs. Conversely, stronger readings may offer temporary support to the greenback.
Technical Outlook for AUDUSD
Technically, AUDUSD remains in an upward trajectory. Support levels are currently seen near 0.6700, with immediate resistance around 0.6780. A sustained break above 0.6780 could open the door toward the 0.6820 zone, while a drop below 0.6700 might signal a corrective pullback.
Short-term momentum favors the bulls, particularly as global sentiment tilts toward risk-taking amid expectations of US monetary easing.
Market Sentiment and Trading Strategy
For traders, the AUDUSD pair offers an intriguing setup.
Bullish traders may look to buy dips toward the 0.6700 level, targeting a move toward 0.6820 in the near term.
Cautious traders may wait for confirmation from US GDP and PCE data before taking positions, as these reports could significantly influence volatility.
Conckusion:
The Australian Dollar is gaining momentum on the back of domestic economic resilience, hotter inflation, and a weaker US Dollar plagued by political and policy uncertainty. As the market digests upcoming US economic releases, the balance of risks currently favors further AUDUSD gains at least in the near term.
Traders should stay alert to shifting RBA signals, Chinese trade developments, and US economic data, all of which will be critical drivers of price action in the coming sessions.
