The Australian Dollar trades around 0.6640, buoyed by the Reserve Bank of Australia’s steadfast approach. The US Dollar weakens as expected Federal Reserve rate cuts loom. The divergent paths of the RBA and the Fed make the Australian Dollar more attractive.
The AUD/USD pair sees a 0.20% increase, supported by RBA Governor Michele Bullock’s firm comments. Bullock indicated that no further rate cuts are needed and a hike could be considered, reducing the chance of more easing. This supports the Australian Dollar’s positive trend.
Us Dollar Under Pressure
The US Dollar faces pressure from anticipated additional Federal Reserve rate cuts amid softening economic and labour indicators. The recent PCE report showed core inflation at 2.8% Year-on-Year, above the Fed’s target, keeping the door open for more moves.
CME FedWatch gives a 90% chance of a 25-basis-point cut at Wednesday’s meeting, affecting USD demand. Upcoming US reports will shape market expectations. Australia, however, leans toward a more restrictive policy, with inflation exceeding the RBA’s target, and tight conditions could persist into 2026.
Australia’s labour market report, due Thursday, is key. It could influence RBA policy outlook. AUD/USD retains its advance around 0.6640, steady above the 100-period SMA, with the RSI confirming bullish momentum. Immediate resistance is at 0.6650, with support at 0.6609.
The widening gap between the Reserve Bank of Australia’s firm policy and the Federal Reserve’s expected rate cuts is creating a clear upward path for the AUD/USD. We see the pair holding strong around 0.6640, directly reflecting the RBA’s recent talk of even considering a rate hike. This central bank divergence is the most significant factor for us to watch.
Australian Dollar Strength
We believe the Australian dollar’s strength is well-founded, as inflation in Australia has remained persistent. Data from earlier in 2025 showed the quarterly CPI print was still well above the RBA’s target, holding stubbornly around 3.6%, which justifies their hawkish stance. This contrasts sharply with the situation in the United States.
On the other side of the trade, the US dollar is softening due to a slowing economy. We’ve seen this pattern develop since late 2024, when US GDP growth moderated to 1.8% and recent job reports have consistently shown a cooling labor market. The market is therefore almost certain of a Fed rate cut tomorrow, with pricing from the CME FedWatch Tool showing a near 90% probability.
For derivative traders, this suggests positioning for further AUD/USD gains through call options. Buying calls with a strike price above the immediate 0.6650 resistance could offer a cost-effective way to capture a potential move toward the 0.6700 level. Using a bull call spread would also allow us to define our risk ahead of key data releases this week.
This setup is reminiscent of what we saw in the 2009-2010 period, when the RBA began a hiking cycle well before the Federal Reserve moved off zero, causing the AUD/USD to surge. That historical precedent supports the idea that policy divergence can fuel a sustained trend. The current dynamic, though less dramatic, follows a similar script.
Our immediate focus is on tomorrow’s Fed decision and the Australian employment report on Thursday. A weaker-than-expected jobs number from Australia could challenge this view, making the 0.6609 support level a critical line to watch. Any break below that level would signal a need for us to reassess the bullish outlook.
