The Australian Dollar (AUD) continued to strengthen against the US Dollar (USD) on Wednesday, following more than 1.50% gains from the previous session. The AUD/USD pair benefited from a weaker US Dollar, driven by softer-than-expected US inflation data.
In Australia, the seasonally adjusted Wage Price Index for Q1 2025 rose by 3.4% year-over-year, surpassing market expectations of a 3.2% increase and marking a recovery from the previous quarter’s slowest wage growth since Q3 2022. On a quarterly basis, the index climbed 0.9%, beating the anticipated 0.8% rise.
Meanwhile, Australian Prime Minister Anthony Albanese was sworn in for a second term on Tuesday following a decisive election victory. Key cabinet positions, including treasurer, foreign affairs, defense, and trade, remain unchanged. Albanese is also set to attend the inauguration Mass of Pope Leo XIV in Rome on Sunday, where he will meet with European Commission President Ursula von der Leyen to discuss trade relations.
US Inflation Data and Global Trade Tensions Impact USD
In the US, consumer inflation figures showed a slight decline. The Consumer Price Index (CPI) for April rose 2.3% year-over-year, slightly below March’s 2.4% and market expectations. Core CPI, excluding food and energy, also increased 2.8% annually, matching expectations. The data contributed to easing speculation for aggressive interest rate hikes by the Federal Reserve.
Furthermore, easing global trade tensions have reduced market expectations for aggressive rate cuts in Australia. Revised forecasts now suggest the Reserve Bank of Australia (RBA) could reduce the cash rate to 3.1% by year-end, up from earlier projections of 2.85%. However, the RBA is still widely expected to cut rates by 25 basis points in its upcoming policy meeting.
Optimism over a US-China trade deal also boosted sentiment. US President Donald Trump confirmed that the US and China have reached a preliminary agreement to significantly reduce tariffs. This agreement is viewed as a positive step toward easing trade tensions, which has further pressured the US Dollar.
Technical Outlook for AUD/USD
The AUD/USD pair is trading near 0.6470, showing a bullish outlook, with the pair above the nine-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) has moved above the 50 mark, reinforcing the positive sentiment.
The pair may test the six-month high of 0.6515, reached on December 2, 2024. A sustained break above this level could lead to a move towards the seven-month high of 0.6687 from November 2024. On the downside, the AUD/USD pair could find support at the nine-day EMA around 0.6433, followed by the 50-day EMA near 0.6353. A break below these levels could weaken the short-term bullish momentum and open the door for a decline towards 0.5914, a level not seen since March 2020.
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