Australian Dollar Holds on to Gains as US Dollar Weakens on Fed Rate Cut Expectations

Australian Dollar Holds on to Gains as US Dollar Declines on Fed Rate Cut Anticipation

The Australian Dollar (AUD) extends its three-day winning streak on Thursday, gaining momentum after the release of Australia's labor market data for July. The AUD/USD currency pair strengthened as the US Dollar (USD) weakened amidst growing expectations that the US Federal Reserve (Fed) will implement further interest rate cuts in September.

Australia's Employment Data Exceeds Expectations

Australia’s Employment Change for July came in at 24.5K, far surpassing the 1K increase in June (which was later revised from 2K), though slightly below the expected 25K. Additionally, the Unemployment Rate declined to 4.2%, as predicted, from 4.3% in June, signaling further strength in the Australian labor market.

These positive data points have provided solid support for the AUD, reflecting a stable economic outlook for Australia, even as global uncertainties remain.

US Dollar Weakens on Growing Fed Rate Cut Expectations

Meanwhile, the US Dollar (USD) remains under pressure as Fed rate cut expectations grow, fueled by comments from US Treasury Secretary Scott Bessent. In a Wednesday interview, Bessent indicated that short-term Fed interest rates should be reduced by 1.5%–1.75% below the current effective benchmark of 4.33%. According to Bessent, there is a high probability that the Fed will choose to implement a 50 basis point rate cut in September, a move that would likely put further pressure on the USD.

As a result, the AUD continues to benefit from a weakening US Dollar, with AUD/USD making gains as market participants anticipate more dovish actions from the Fed.

Outlook for AUD/USD

With Australia's employment data supporting the AUD, and US rate cut expectations continuing to weigh on the USD, the Australian Dollar remains well-positioned to retain its gains in the near term. The outlook for AUD/USD remains positive, barring any major shifts in market sentiment or economic data.

The focus now shifts to the next key economic releases and central bank signals, as traders remain watchful of any developments that could impact both the USD and AUD.