Australian dollar breaks out in the interest rate cut storm: Fed rate cut expectations trigger a key battle at 0.6500
2025-08-15 14:45:04
The Australian dollar rebounded against the US dollar during the Asian and European trading hours on Friday (August 15), currently trading around 0.6505, despite key economic data released by China, Australia's major trading partner, falling short of expectations. Previously, the Australian dollar fell by more than 0.5% against the US dollar on Thursday, driven by strong US economic data. The US dollar index fell slightly on Friday, providing an opportunity for the Australian dollar to rebound.
China's total retail sales of consumer goods increased by 3.7% year-on-year in July, lower than the expected 4.6% and the previous value of 4.8%; during the same period, the added value of large-scale industries increased by 5.7% year-on-year, also lower than the expected 5.9% and the previous value of 6.8%.
However, the Australian dollar's downside against the US dollar may be limited as rising market expectations of a September rate cut by the Federal Reserve put pressure on the US dollar. Investors are closely watching the US July retail sales data and the preliminary University of Michigan consumer confidence index to be released later.
Dollar edges lower ahead of retail sales data, Australian dollar rises
The U.S. dollar index (DXY), which measures the performance of the U.S. dollar against a basket of six major currencies, continued its decline earlier this week in Asian trading on Friday and is currently trading around 97.98, down about 0.19%.
The latest data shows that the U.S. Producer Price Index (PPI) rose 3.3% year-on-year in July, a significant increase from the previous reading of 2.4% and far exceeding market expectations of 2.5%. More notably, the year-on-year growth rate of the core PPI in July jumped to 3.7%, not only higher than 2.6% in June but also significantly exceeding market expectations of 2.9%.
Initial jobless claims in the United States fell to 224,000 in the week ended August 9, down from 227,000 in the previous week (226,000 before revision) and below market expectations of 228,000. This employment data highlights the continued tight labor market.
The latest data from the CME Federal Reserve Watch tool shows that federal funds futures traders currently expect the probability of the Federal Reserve cutting interest rates by 25 basis points at its September meeting to be as high as 92%, reflecting the market's strong expectation of a shift in monetary policy.
U.S. Treasury Secretary Scott Besant said in an interview on Wednesday that the current effective benchmark interest rate of 4.33% should be lowered by 1.5-1.75 percentage points, and revealed that there is a considerable possibility that the central bank will take a large interest rate cut of 50 basis points in September.
US President Trump recently released his "paper calculations," claiming that the Federal Reserve interest rate should be lowered to around 1%. He further emphasized that the interest rate should be 3 to 4 percentage points lower than the current level, adding that "interest rates are just a numbers game." These remarks have sparked widespread market concerns about the Federal Reserve's political independence.
In response to this, Chicago Fed President Goolsbee issued a clear response on Wednesday, pointing out that economists agree that the Fed must maintain policy independence and be free from political interference. He emphasized that "central bank independence is crucial because we must not allow inflation to return." This statement was seen as an indirect rebuttal to Trump's remarks.
Even more striking, Reuters reported on Tuesday that White House spokeswoman Carolyn Levitt revealed that President Trump is considering taking legal action against Federal Reserve Chairman Powell over renovations at the Federal Reserve headquarters. This rare move has further exacerbated market concerns about the Fed's independence and could have far-reaching implications for future monetary policy.
U.S. Treasury Secretary Scott Bessant said on Wednesday that Chinese and American trade officials will meet again in the next two to three months to discuss the future of bilateral economic and trade relations. Bessant emphasized that the U.S. needs to see sustained progress from China in curbing the flow of fentanyl, an observation period that could take several months or even a year, before considering reducing tariffs. This statement sets clear preconditions for the next phase of Sino-U.S. trade negotiations.
Meanwhile, Australia's latest employment data showed that the number of employed people increased by 24,500 in July, a significant improvement from the revised 10,000 in June (the initial value was 20,000), but slightly lower than the market expectation of 25,000. As expected, the unemployment rate fell to 4.2% that month, down from 4.3% in June.
As widely expected, the Reserve Bank of Australia (RBA) announced a 25 basis point interest rate cut on Tuesday, lowering the Official Cash Rate (OCR) from 3.85% to 3.6% at its August policy meeting. RBA Governor Michelle Bullock stated that current economic forecasts suggest further rate cuts may be necessary to ensure price stability, but emphasized that the Monetary Policy Committee will adhere to a meeting-by-meeting decision-making approach and will not pre-commit to a specific policy path in response to potential market fluctuations.
In its latest monetary policy statement, the Reserve Bank of Australia (RBA) noted that inflationary pressures continued to ease, but uncertainties remained in the economic outlook. The statement reiterated that maintaining price stability and full employment remained the RBA's primary policy objectives, a statement that left room for possible future policy adjustments.
AUD rebounds towards confluence resistance zone around 0.6500
(AUD/USD daily chart, source: Yihuitong)
Technical analysis on the daily chart shows that market momentum has shifted from bullish to bearish as the pair broke below the ascending channel pattern. The pair also fell below the 9-day exponential moving average (0.6509), indicating weakening short-term momentum. Furthermore, the 14-day relative strength index (RSI) fell below its 50-day moving average, further confirming the bearish market bias.
On the downside, given the weak short- to medium-term price momentum, the Australian dollar may fall to the two-month low of 0.6419 set on August 1. If it continues to fall, it may test the three-month low of 0.6372 recorded on June 23.
In terms of upside potential, the short-term resistance level of the exchange rate is the 50-day moving average of 0.6500. If it breaks through, it may test the 9-day moving average of 0.6508. If the exchange rate can return to the rising channel, it may form a short trap and start a bullish correction.
At 14:43 Beijing time, the Australian dollar was trading at 0.6507/08 against the US dollar.
China's total retail sales of consumer goods increased by 3.7% year-on-year in July, lower than the expected 4.6% and the previous value of 4.8%; during the same period, the added value of large-scale industries increased by 5.7% year-on-year, also lower than the expected 5.9% and the previous value of 6.8%.
However, the Australian dollar's downside against the US dollar may be limited as rising market expectations of a September rate cut by the Federal Reserve put pressure on the US dollar. Investors are closely watching the US July retail sales data and the preliminary University of Michigan consumer confidence index to be released later.
Dollar edges lower ahead of retail sales data, Australian dollar rises
The U.S. dollar index (DXY), which measures the performance of the U.S. dollar against a basket of six major currencies, continued its decline earlier this week in Asian trading on Friday and is currently trading around 97.98, down about 0.19%.
The latest data shows that the U.S. Producer Price Index (PPI) rose 3.3% year-on-year in July, a significant increase from the previous reading of 2.4% and far exceeding market expectations of 2.5%. More notably, the year-on-year growth rate of the core PPI in July jumped to 3.7%, not only higher than 2.6% in June but also significantly exceeding market expectations of 2.9%.
Initial jobless claims in the United States fell to 224,000 in the week ended August 9, down from 227,000 in the previous week (226,000 before revision) and below market expectations of 228,000. This employment data highlights the continued tight labor market.
The latest data from the CME Federal Reserve Watch tool shows that federal funds futures traders currently expect the probability of the Federal Reserve cutting interest rates by 25 basis points at its September meeting to be as high as 92%, reflecting the market's strong expectation of a shift in monetary policy.
U.S. Treasury Secretary Scott Besant said in an interview on Wednesday that the current effective benchmark interest rate of 4.33% should be lowered by 1.5-1.75 percentage points, and revealed that there is a considerable possibility that the central bank will take a large interest rate cut of 50 basis points in September.
US President Trump recently released his "paper calculations," claiming that the Federal Reserve interest rate should be lowered to around 1%. He further emphasized that the interest rate should be 3 to 4 percentage points lower than the current level, adding that "interest rates are just a numbers game." These remarks have sparked widespread market concerns about the Federal Reserve's political independence.
In response to this, Chicago Fed President Goolsbee issued a clear response on Wednesday, pointing out that economists agree that the Fed must maintain policy independence and be free from political interference. He emphasized that "central bank independence is crucial because we must not allow inflation to return." This statement was seen as an indirect rebuttal to Trump's remarks.
Even more striking, Reuters reported on Tuesday that White House spokeswoman Carolyn Levitt revealed that President Trump is considering taking legal action against Federal Reserve Chairman Powell over renovations at the Federal Reserve headquarters. This rare move has further exacerbated market concerns about the Fed's independence and could have far-reaching implications for future monetary policy.
U.S. Treasury Secretary Scott Bessant said on Wednesday that Chinese and American trade officials will meet again in the next two to three months to discuss the future of bilateral economic and trade relations. Bessant emphasized that the U.S. needs to see sustained progress from China in curbing the flow of fentanyl, an observation period that could take several months or even a year, before considering reducing tariffs. This statement sets clear preconditions for the next phase of Sino-U.S. trade negotiations.
Meanwhile, Australia's latest employment data showed that the number of employed people increased by 24,500 in July, a significant improvement from the revised 10,000 in June (the initial value was 20,000), but slightly lower than the market expectation of 25,000. As expected, the unemployment rate fell to 4.2% that month, down from 4.3% in June.
As widely expected, the Reserve Bank of Australia (RBA) announced a 25 basis point interest rate cut on Tuesday, lowering the Official Cash Rate (OCR) from 3.85% to 3.6% at its August policy meeting. RBA Governor Michelle Bullock stated that current economic forecasts suggest further rate cuts may be necessary to ensure price stability, but emphasized that the Monetary Policy Committee will adhere to a meeting-by-meeting decision-making approach and will not pre-commit to a specific policy path in response to potential market fluctuations.
In its latest monetary policy statement, the Reserve Bank of Australia (RBA) noted that inflationary pressures continued to ease, but uncertainties remained in the economic outlook. The statement reiterated that maintaining price stability and full employment remained the RBA's primary policy objectives, a statement that left room for possible future policy adjustments.
AUD rebounds towards confluence resistance zone around 0.6500
(AUD/USD daily chart, source: Yihuitong)
Technical analysis on the daily chart shows that market momentum has shifted from bullish to bearish as the pair broke below the ascending channel pattern. The pair also fell below the 9-day exponential moving average (0.6509), indicating weakening short-term momentum. Furthermore, the 14-day relative strength index (RSI) fell below its 50-day moving average, further confirming the bearish market bias.
On the downside, given the weak short- to medium-term price momentum, the Australian dollar may fall to the two-month low of 0.6419 set on August 1. If it continues to fall, it may test the three-month low of 0.6372 recorded on June 23.
In terms of upside potential, the short-term resistance level of the exchange rate is the 50-day moving average of 0.6500. If it breaks through, it may test the 9-day moving average of 0.6508. If the exchange rate can return to the rising channel, it may form a short trap and start a bullish correction.
At 14:43 Beijing time, the Australian dollar was trading at 0.6507/08 against the US dollar.
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