The Australian Dollar (AUD) steadied against the US Dollar (USD) on Friday, pausing after three consecutive days of advances. The pair’s near-term outlook remains constructive, with the AUDUSD poised for further appreciation as domestic economic data signals resilience while the US Dollar struggles with a dovish shift in Federal Reserve (Fed) rhetoric.
Private Sector Credit Surges to Multi-Month Highs
Australia’s private sector credit rose 0.7% month-on-month in July, accelerating from the previous 0.6% growth and marking the fastest pace since April. On a yearly basis, credit expanded 7.2%, the strongest annual growth since February 2023.
This robust credit growth reflects improving business confidence and resilient household demand, even amid high borrowing costs. The data reinforces the view that Australia’s economy remains on a firm footing, providing the Reserve Bank of Australia (RBA) with more flexibility in its policy path.
Inflation Upside Surprises, Easing Rate-Cut Bets
Adding to the Australian Dollar support, Australia’s Monthly Consumer Price Index (CPI) rose 2.8% year-over-year in July, sharply higher than the 2.3% forecast and the previous 1.9% print.
Stronger inflation reduces the urgency for the RBA to implement aggressive rate cuts in the near term. Minutes from the RBA’s August meeting showed policymakers remain cautious, signaling that while rate reductions are likely over the next year, the timing and pace of cuts will depend on incoming data and global risk trends.
US Dollar Struggles as Fed Turns Dovish
The US Dollar Index (DXY) hovered around 97.90 on Friday, holding recent levels but under pressure from increasingly dovish Fed signals.
Fed Governor Christopher Waller indicated support for a rate cut in September, with additional cuts over the next six months to prevent a labor market downturn.
Fed Chair Jerome Powell, speaking at Jackson Hole, acknowledged rising risks to the job market while noting that inflation remains a concern.
Markets are now pricing in a higher probability of a 25-basis-point cut in September, a shift that could keep the USD on the defensive in the coming weeks.
Political Pressure Adds Volatility to USD
US President Donald Trump’s decision to remove Fed Governor Lisa Cook has raised concerns about political interference in the central bank. Analysts suggest this move could pave the way for deeper rate cuts, amplifying USD weakness.
Adding to geopolitical tensions, Trump has threatened additional tariffs and export restrictions in response to digital service taxes targeting American technology companies. Traders are also monitoring his warning of a 200% tariff on Chinese goods, which could disrupt trade flows and market sentiment.
Global Trade and China Risks for Australian Dollar
China, Australia’s largest trading partner, remains in focus. Reports suggest Chinese chipmakers plan to triple output of AI processors next year, a move that could reshape global semiconductor markets.
However, escalating trade tensions with the US pose a downside risk for the AUD, given Australia’s heavy trade exposure to China. Any slowdown in Chinese demand could temper Australian Dollar strength in the medium term.
Mixed Signals From Domestic Investment Data
Australia’s Private Capital Expenditure (CapEx) rose 0.2% in Q2, recovering from a 0.1% decline in Q1 but missing the expected 0.7% rise. While modestly positive, the data underscores that business investment is still lagging behind credit growth, suggesting a cautious corporate sector amid global uncertainties.
Key Events Ahead
Investors are now looking toward the US Personal Consumption Expenditures (PCE) Price Index, due later Friday, for fresh clues ahead of the Fed’s September meeting. Headline PCE is forecast to rise 2.6% YoY, with core PCE expected at 2.9%.
A softer reading could fuel expectations for more aggressive easing, adding to USD downside and potentially propelling AUDUSD higher.
Technical Outlook: AUDUSD Bias Remains Upward
Technically, AUDUSD is finding support near 0.6600, with upside resistance around 0.6700. A sustained break above that level could open the door to 0.6750–0.6800. Momentum indicators remain positive, reinforcing the pair’s short-term bullish bias.
Conclusion
The Australian Dollar remains supported by robust private sector credit growth, stronger-than-expected inflation data, and dovish Fed rhetoric that is undermining USD strength. However, risks tied to global trade tensions and upcoming US data releases could inject volatility.
For now, the bias remains upward for AUDUSD, with the potential for further gains if US inflation data supports market expectations of a September rate cut.
