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The Australian Dollar gains traction as the US Dollar weakens due to mounting economic concerns and declining sentiment.
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Federal Reserve officials cite falling confidence in both business and consumers, partly attributing it to US trade policy shifts.
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RBA Governor Bullock defends the rate cut as a proactive move to strengthen the economy and instill confidence.
Australian Dollar appreciates as US Dollar weakens on economic concerns
The Australian Dollar (AUD) rebounded against the US Dollar (USD) on Wednesday, recovering from over 0.50% losses seen in the previous session. The AUD/USD pair strengthened as the greenback continued to retreat, under pressure from Federal Reserve (Fed) officials’ cautionary remarks regarding the economic outlook and flagging business sentiment.
Cleveland Fed President Beth Hammack and San Francisco Fed President Mary C. Daly both expressed increasing unease over the US economy during a panel hosted by the Federal Reserve Bank of Atlanta. While acknowledging that key indicators remain stable, they highlighted a decline in corporate and consumer confidence, attributing it in part to recent changes in US trade policies.
On the geopolitical front, China’s Commerce Ministry criticized US chip-related measures as “unilateral bullying and protectionism,” intensifying global trade tensions. Chinese authorities have indicated a willingness to investigate whether the US is ready to revise its stance.
The Reserve Bank of Australia (RBA) cut its Official Cash Rate (OCR) by 25 basis points—from 4.1% to 3.85%—during its May meeting. RBA Governor Michele Bullock defended the decision, describing it as a forward-looking and confidence-boosting step aligned with current economic conditions. She also signaled the possibility of additional policy adjustments if warranted.
Political dynamics in Australia also played a role. The opposition coalition collapsed after the National Party withdrew from its alliance with the Liberal Party, while the ruling Labor Party capitalized on the disruption to reinforce its legislative agenda.
US Dollar under pressure amid Fed concerns and weakening data
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The US Dollar Index (DXY), which measures the USD against a basket of major currencies, declined for the third consecutive session, trading around 99.90 at the time of writing.
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On Tuesday, Atlanta Fed President Raphael Bostic expanded on previous warnings, citing how inconsistent trade tariffs from the Trump era have disrupted key US logistics channels.
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The USD weakened further after Moody’s downgraded the US credit rating from Aaa to Aa1, joining previous actions by Fitch Ratings (2023) and Standard & Poor’s (2011). Moody’s now estimates that US federal debt could hit 134% of GDP by 2035, up from 98% in 2023.
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Recently released inflation data pointed to softening price pressures, with both the Consumer Price Index (CPI) and Producer Price Index (PPI) showing signs of deceleration. This has bolstered expectations for further Fed rate cuts in 2025, weighing on the USD.
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Weak US Retail Sales figures have added to concerns of prolonged sluggish growth.
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On the monetary front, the People’s Bank of China (PBoC) cut its Loan Prime Rates (LPRs), reducing the one-year LPR from 3.10% to 3.00%, and the five-year from 3.60% to 3.50%.
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According to the National Bureau of Statistics (NBS), China’s Retail Sales rose 5.1% YoY in April—below the 5.5% forecast—while Industrial Production climbed 6.1% YoY, beating expectations but slowing from 7.7% in March.
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The risk-sensitive Australian Dollar benefited from optimism tied to a 90-day US-China trade truce, and speculation about future deals with other global partners.
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US Treasury Secretary Scott Bessent emphasized that President Trump plans to reintroduce tariffs on trading partners unwilling to negotiate in good faith.
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According to the Australian Bureau of Statistics (ABS), employment surged by 89,000 in April, well above the forecasted 20,000. The Unemployment Rate held steady at 4.1%.
Australian Dollar remains below 0.6450, support appears at nine-day EMA
The AUD/USD pair is hovering around 0.6450 on Wednesday. Technical indicators continue to flash bullish signals, as the pair trades above the nine-day Exponential Moving Average (EMA) and the 14-day Relative Strength Index (RSI) stays above the neutral 50 level—both pointing to sustained upward momentum.
On the upside, immediate resistance is noted at the six-month high of 0.6515, last seen on December 2, 2024. A break above this level could clear the path for a retest of the seven-month high at 0.6687, registered in November 2024.
Initial support lies at the nine-day EMA of 0.6426, followed by the 50-day EMA near 0.6365. A decisive break below these supports could undermine the short- to mid-term bullish structure, opening the door to a drop toward the March 2020 low of 0.5914.
