The Australian Dollar (AUD) gained ground against the US Dollar (USD) on Friday, rebounding from earlier losses as the Greenback came under renewed pressure amid falling US Treasury yields and escalating fiscal concerns in the United States. The AUD/USD pair moved higher after the 30-year US bond yield retreated from a 19-month high, fueling a broader pullback in the US Dollar.
Market sentiment around the USD weakened following the passage of former President Donald Trump’s “One Big Beautiful Bill” through the US House of Representatives. The legislation, which includes tax breaks on tipped income and domestic car loans, now heads to the Senate and is expected to widen the fiscal deficit by $3.8 billion, according to the Congressional Budget Office (CBO).
Aussie Recovers as US Dollar Falters
While the US Dollar had initially strengthened on Thursday following robust US S&P Global PMI data—showing improvements in both manufacturing and services—the rally proved short-lived. The Composite PMI for May rose to 52.1 from 50.6 in April, with both Manufacturing and Services PMIs climbing to 52.3.
Further pressure on the US Dollar emerged after Moody’s downgraded the US credit rating from Aaa to Aa1, citing surging debt-servicing costs, expanding entitlement programs, and declining tax revenues. The agency forecasts US federal debt will rise to 134% of GDP by 2035, from 98% in 2023, with the fiscal deficit approaching 9% of GDP.
In Australia, recent economic indicators showed mixed signals. The Manufacturing PMI remained steady at 51.7 in May, while the Services PMI dipped to 50.5 from 51.0, pulling the Composite PMI down slightly to 50.6. Despite the softer services data, the Australian Dollar found support from easing US-China trade tensions, optimism around further international trade agreements, and domestic political developments.
RBA Rate Cut and Political Shifts Shape Outlook
Earlier this week, the Reserve Bank of Australia (RBA) cut its Official Cash Rate (OCR) by 25 basis points to 3.85%, citing a proactive approach to inflation management. RBA Governor Michele Bullock adopted a dovish tone, emphasizing that the central bank remains ready to adjust policy further if needed. The rate cut was broadly seen as supportive for economic sentiment.
Australia also experienced political turbulence as the National Party exited its coalition with the Liberal Party, leading to the collapse of the opposition alliance. The ruling Labor Party capitalized on the disruption, consolidating power with a more progressive platform—an event that has introduced fresh dynamics into the country’s policy outlook.
Technical Picture: AUD/USD Eyes Key Resistance Levels
Technically, the AUD/USD pair is trading around 0.6430 with a bullish bias, buoyed by support from the nine-day Exponential Moving Average (EMA) at 0.6425. The 14-day Relative Strength Index (RSI) remains above 50, reinforcing upward momentum.
To the upside, the pair faces resistance at the six-month high of 0.6515, recorded on December 2, 2024. A sustained break above this level could pave the way toward the seven-month peak of 0.6687 from November 2024.
Support lies at the 50-day EMA near 0.6369, with further declines potentially exposing the March 2020 low of 0.5914.
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