Australian Dollar Holds Gains as US Dollar Weakens Amid Fiscal Deficit Concerns

Australian Dollar Holds Gains as US Dollar Weakens Amid Fiscal Deficit Concerns

The Australian Dollar (AUD) managed to hold onto its gains against the US Dollar (USD) on Friday, rebounding after losses in the previous session. The AUD/USD currency pair rose as the US Dollar came under pressure, driven by a retreat in the 30-year US Treasury bond yield from its 19-month high.

Concerns over the US fiscal deficit have weighed on the Greenback after the US House of Representatives narrowly passed President Donald Trump’s “One Big Beautiful Bill,” which is now headed to the Senate. The bill is expected to increase the US budget deficit, raising uncertainty about the country’s fiscal health.

Despite the broader weakness in the US Dollar, the Australian Dollar’s upside may be limited. Reserve Bank of Australia (RBA) Governor Michele Bullock maintained a dovish stance, suggesting that further interest rate cuts could be on the horizon. This cautious tone may dampen investor enthusiasm for the AUD.

On Thursday, the AUD/USD pair lost ground briefly after the release of stronger-than-expected US S&P Global Purchasing Managers’ Index (PMI) data. The Composite PMI rose to 52.1 in May from 50.6 in April, with Manufacturing PMI climbing to 52.3 and Services PMI also reaching 52.3, signaling continued US economic expansion.

The market will be closely watching upcoming developments in US fiscal policy and RBA communications to gauge the AUD/USD direction in the near term.