AUD/USD Climbs to Multi-Month Highs on Dovish Fed Bets

The Australian Dollar is exhibiting notable strength against the US Dollar, with the AUD/USD pair trading around 0.6610 during the European session on Wednesday. This marks the highest level for the pair in over a month, as it extends a recent recovery driven by a number of factors. These include a softening US dollar, expected interest rate cuts by the Federal Reserve, and an overall improvement in global risk appetite.

Market Drivers

• Expectations of Fed rate cuts next week
• S&P 500 futures posting significant gains
• Weaker US job growth (911K fewer jobs than estimated)
• US Dollar Index stable around 97.80
• Upcoming US PPI data (expected: 3.3% headline, 3.5% core)

The bullish momentum in AUD/USD is underpinned by the market’s increasingly confident anticipation of a monetary easing cycle by the Federal Reserve. The Fed, which paused its tightening policy earlier in the year, is now widely expected to initiate the first of what many analysts believe will be a series of rate cuts as early as next week. According to the CME FedWatch tool, while the overwhelming consensus points to a standard 25-basis point reduction in the benchmark interest rate, a non-negligible 8.4% probability is assigned to a more aggressive 50-basis point cut, taking the target range down to 3.75%-4.00%.

This expectation is fueled, in part, by recent revisions to US labor market data, which painted a less rosy picture than previously believed. A revised report from the Bureau of Labor Statistics revealed that the US economy created 911,000 fewer jobs through March 2025 than initially estimated. This significant downward revision suggests a more pronounced slowdown in job growth, bolstering the case for the Fed to adopt a more accommodative stance to support economic activity.

Source: CME FedWatch Tool, September 10, 2025

AUD/USD Boosted by Risk-On Sentiment

Adding to the positive backdrop for the Aussie, broader market sentiment has turned decidedly risk-on. This is clearly reflected in the performance of S&P 500 futures, which have posted substantial gains during European trading hours, signaling a robust appetite for riskier assets. Further solidifying this bullish outlook, Barclays recently raised its year-end target for the S&P 500 to 6,450, up from a previous forecast of 6,050. This marks the second upward revision in just three months, driven by stronger-than-expected corporate earnings, resilient US economic growth, and sustained optimism surrounding the potential of artificial intelligence. Despite emerging concerns about the labor market, Barclays anticipates continued equity support throughout the remainder of the year, citing solid earnings momentum, stabilizing global GDP growth, potential Federal Reserve rate cuts, and historically favorable seasonal trading patterns.

While the US Dollar Index (DXY), which tracks the Greenback’s performance against a basket of six major currencies, has remained relatively stable near Tuesday’s high around 97.80, the underlying sentiment towards the dollar appears to be softening. The downward revision of the Nonfarm Payrolls (NFP) benchmark has raised concerns about the strength of the US economy, potentially limiting the dollar’s upside potential. Investors are now keenly focused on the upcoming US Producer Price Index (PPI) data for August, due to be released later today. Expectations are for the headline PPI to show steady growth at an annualized pace of 3.3%, while the core PPI, which excludes volatile food and energy components, is expected to rise by 3.5%, slightly below the 3.7% increase recorded in July. The PPI data will provide further insights into the state of inflation and could influence the Fed’s policy outlook.

From a technical perspective, the AUD/USD pair has broken above key resistance levels, confirming a bullish trend. The pair has surpassed the 0.6567 level, which represents the neckline of a double-top pattern, and is currently trading above both its 50-day moving average and the Ichimoku cloud, further reinforcing the upward momentum. Positive RSI signals, after clearing overbought conditions, and rising Percentage Price Oscillator (PPO) lines suggest that the rally may have further to run. Immediate resistance is seen at the week’s high of 0.6623, followed by the year-to-date high of 0.6628. A break above these levels could pave the way for a test of the 0.6700 psychological level. On the downside, immediate support lies at 0.6567, followed by the 0.6500 level, which represents both a psychological and technical support area. Australian forex traders will be watching these levels closely

Analyst Summary