The Australian Dollar (AUD) extended its decline against the US Dollar (USD) for a third consecutive session on Wednesday, with the AUD/USD pair trading near 0.6440. The latest retreat comes in the wake of mixed domestic inflation data and persistent expectations of further monetary easing from the Reserve Bank of Australia (RBA), contrasting with upbeat sentiment surrounding the US Dollar.
AUD Slips Despite Higher-Than-Expected CPI
Australia’s Monthly Consumer Price Index (CPI) came in slightly above expectations, with inflation holding steady at 2.4% year-over-year in April versus forecasts of 2.3%. While the data signals ongoing price pressures, it failed to lift the Aussie as market sentiment remains anchored by the RBA’s dovish stance.
The RBA recently resumed its rate-cutting cycle, trimming the cash rate by 25 basis points. The central bank acknowledged progress on inflation but also highlighted growing risks to the economic outlook from global trade tensions, particularly between the US and China.
RBA Rate Expectations Weigh on AUD
Despite the latest inflation print, markets are leaning toward further policy easing from the RBA. Traders are pricing in a 65% chance of another rate cut in July, and anticipate a total of 75 basis points in easing by Q1 2026. RBA Governor Michele Bullock has left the door open for more aggressive action if the economic outlook deteriorates significantly.
While National Australia Bank (NAB) expects the RBA to pivot to a less dovish tone and return rates to a neutral level, it has raised its terminal rate forecast to 3.1%, up from 2.6%.
US Dollar Strengthens on Confidence and Yields
The US Dollar continues to build momentum, underpinned by stronger consumer confidence and resilient Treasury yields. The US Dollar Index (DXY) is trading around 99.70, following a 0.50% gain in the prior session. The boost came from Tuesday’s Consumer Confidence Index, which jumped to 98.0 in May from 86.0, signaling growing optimism among American consumers.
Although US Durable Goods Orders fell by 6.3% in April, the decline was milder than the expected 7.9% drop. Meanwhile, 10- and 30-year US Treasury yields held firm at 4.46% and 4.97%, respectively, bolstered by Japan’s potential reduction in debt issuance, which has helped support global bond markets.
Fiscal Concerns Loom Over USD’s Outlook
While the Greenback is currently benefiting from positive sentiment and yield support, growing concerns over the US fiscal deficit could limit further upside. Trump’s proposed “One Big Beautiful Bill,” which aims to deliver tax breaks on tipped income and US-made auto loans, is projected to widen the deficit by $3.8 billion, according to the Congressional Budget Office.
Moody’s has downgraded the US credit rating from Aaa to Aa1, joining Fitch and S&P in reducing America’s sovereign creditworthiness. The agency now estimates that US federal debt could reach 134% of GDP by 2035, citing unsustainable debt servicing costs, increasing entitlement spending, and declining revenues.
Trade Developments and China Data in Focus
Improving trade sentiment following Trump’s decision to postpone tariffs on EU imports until July 9 may offer some near-term relief to risk assets, including the AUD. However, tensions between Australia and China could weigh on sentiment. Beijing has criticized Canberra’s potential move to cancel the Darwin Port lease with China’s Landbridge Group, calling it “unfair and unethical.”
Meanwhile, China’s industrial sector showed signs of resilience, with profits rising 3% year-over-year in April. Cumulative profits grew 1.4% in the first four months of 2025, up from 0.8% in Q1. These figures, along with risk-on sentiment, could provide some indirect support to the Australian Dollar.
Technical Outlook: AUD/USD Faces Key Levels
Technically, the AUD/USD pair is hovering around 0.6440, slightly below its nine-day Exponential Moving Average (EMA) of 0.6443. The pair remains within an ascending channel, though momentum has weakened. The 14-day Relative Strength Index (RSI) stays just above 50, indicating lingering bullish potential.
Immediate resistance lies at the nine-day EMA, followed by the six-month high of 0.6537 recorded on May 26. A break above this level could open the door to the channel’s upper boundary near 0.6620.
On the downside, support is seen at the ascending channel’s lower limit around 0.6430, with further demand likely near the 50-day EMA at 0.6381. A decisive drop below these levels would suggest a bearish reversal in the short term.
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