Australian Dollar appreciates as US Dollar weakens on Fed rate cut bets

The Aussie is gaining ground against the greenback Friday, recovering from losses in the previous session. This appreciation comes as the US Dollar struggles following softer-than-expected job data, with traders now eyeing crucial labor market figures that could determine the Fed’s September policy move.

Economists anticipate US Nonfarm Payrolls will add approximately 75,000 jobs in August, with unemployment hovering around 4.3%. Any weaker numbers would significantly boost the likelihood of a Fed rate cut next month - something markets are already pricing in at over 99% probability for a 25-basis-point reduction.

The US Dollar Index is retreating around 98.10 as recent labor market indicators flash warning signs. Initial Jobless Claims rose to 237K, exceeding expectations of 230K, while ADP Employment Change showed a modest 54,000 job increase in August, falling short of the projected 65K.

Meanwhile, the Australian Dollar finds support from solid economic data that’s cooling expectations for additional RBA cuts. A robust July Trade Surplus of 7,310 million (against 4,920 million expected) and better-than-forecast Q2 GDP growth of 0.6% quarter-over-quarter have strengthened the Aussie’s position. Swap markets now assign nearly 90% probability that the central bank will maintain current rates in September.

Australia’s monthly inflation reading of 2.8% year-over-year in July - exceeding both the previous 1.9% and forecasted 2.3% - further diminishes the likelihood of imminent RBA easing.

Chinese economic indicators are also providing tailwinds for the Australian currency, with the Caixin Services PMI unexpectedly rising to 53.0 in August from 52.6 in July, and Manufacturing PMI jumping to 50.5 from 49.5.

From a technical perspective, AUD/USD is trading around 0.6530, positioned at the lower boundary of an ascending channel pattern. The pair sits slightly above its nine-day Exponential Moving Average, suggesting short-term upward momentum.

Resistance lies at the five-week high of 0.6568, followed by the upper channel boundary near 0.6600. A break above would strengthen bullish sentiment toward the nine-month high of 0.6625.

Support is found at the nine-day EMA of 0.6521, coinciding with the channel’s lower boundary, followed by the 50-day EMA at 0.6503. Breaking below this zone would signal bearish momentum toward the three-month low of 0.6414.