AUD Strengthens on Rate-Hold Bets While Aussie Economy Signals Resilience

Markets are pricing in an Australian Dollar rally as the Reserve Bank of Australia maintains its cautious stance on interest rate cuts. Thursday’s trading shows AUD/USD climbing for the fifth consecutive session, reflecting investor confidence in Australia’s economic fundamentals and dovish shifts in US monetary policy.

Economic Tailwinds Drive Australian Dollar Higher

The Australian Bureau of Statistics delivered stronger-than-expected Private Capital Expenditure data, rising 6.4% quarter-over-quarter in Q3—a sharp acceleration from Q2’s modest 0.2% growth and well ahead of the consensus 0.5% forecast. This resilience in business investment provided immediate support to the local currency.

Inflation readings also captured market attention when the ABS released October’s monthly CPI, which printed at 3.8% year-over-year. The figure exceeded both the consensus expectation of 3.6% and the prior month’s 3.5%, reinforcing the RBA’s rationale for maintaining rates at 3.6%. With inflation still hovering above the central bank’s 2–3% target band, rate-cut odds remain limited, supporting the Australian Dollar against weaker counterparts.

The purchasing managers’ indices painted a mixed but generally constructive picture. Manufacturing PMI rebounded to 51.6 in November from 49.7 prior, while Services expanded to 52.7 from 52.5. The Composite reading ticked up to 52.6, signaling economic activity remains in expansionary territory despite global headwinds.

American Dollar Under Pressure Amid Fed Cut Expectations

The US Dollar Index, measuring the greenback’s strength across six major currencies, has retreated to around 99.50 as market participants increasingly anticipate a Federal Reserve rate cut in December. The CME FedWatch Tool now reflects an 84% probability of a 25-basis-point reduction—a dramatic shift from just 30% probability a week prior.

Fed communications have shifted decisively dovish. Fed Governor Christopher Waller highlighted weakness in the labour market as his primary concern, downplaying inflation as “not a big problem.” New York Fed President John Williams signalled openness to “near-term” rate cuts, while Fed Governor Stephen Miran indicated he would support a December 25-bps reduction if given the decisive vote.

Labour market softness appears to be the driving factor. Initial Jobless Claims fell to 216,000 for the week ending November 22, beating expectations of 225,000 and suggesting potential payroll weakness ahead. Producer price pressures have stabilized, with PPI holding steady at 2.7% year-over-year, while Core PPI eased to 2.6%—undershooting forecasts of 2.7% and reinforcing the case for policy accommodation.

Consumer spending dynamics are cooling as well. Retail Sales rose just 0.2% month-over-month in September versus 0.6% in August, and the Conference Board’s Consumer Confidence Index slid 6.8 points to 88.7 in November, reflecting deteriorating household sentiment.

Technical Setup Suggests AUD/USD May Target 0.6630

At current levels around 0.6530, AUD/USD has broken above its nine-day Exponential Moving Average, indicating strengthening short-term momentum. The pair is consolidating within a rectangular trading range, with the upper boundary near 0.6630 emerging as the next technical objective.

For context, the current exchange rate implies that 97 USD converts to approximately 149 AUD at present levels—a meaningful variance from historical averages. Support underpins the pair at 0.6500 and the nine-day EMA at 0.6495. A breakdown below this confluence zone could accelerate selling toward the rectangle’s lower boundary at 0.6420 and the five-month low of 0.6414 recorded in late August.

Market Positioning Favors Continued AUD Momentum

The Reserve Bank of Australia signalled in its November policy minutes that board members maintain a “balanced” outlook and could extend the rate-hold for longer if incoming data proves stronger than expected. RBA Assistant Governor Sarah Hunter cautioned that “sustained above-trend growth could fuel inflationary pressures,” though she emphasized monthly inflation readings deserve careful context rather than reactionary policy shifts.

The divergence between RBA and Fed policy trajectories—with Australia holding firm while the US contemplates easing—provides structural support for the Australian currency. As long as Fed rate-cut expectations remain elevated and domestic Australian data continues supporting the hold stance, AUD/USD appears positioned for further advances toward the 0.6630 technical level and potentially beyond.