AUD/USD Price Forecast: On track to revisit four-year high near 0.7280
- AUD/USD edges up to near 0.7203 as the US Dollar faces selling pressure.
- The odds of the Fed raising interest rates this month have diminished to 50%.
- Investors await the US NFP data for August.
The Australian Dollar (AUD) trades marginally higher at around 0.7203 against the US Dollar (USD) during the European trading session on Friday. The Aussie pair is broadly firm as the US Dollar remains under pressure, with traders reassessing Federal Reserve (Fed) interest rate expectations.
Dollar softens as Fed hike odds retreat
Analysts at MUFG observe that the US rates market has scaled back expectations for near-term tightening, with pricing now implying “close to a 50:50 probability of a Fed rate hike this month” compared with “closer to a 70% probability of a hike at the start of this month.” They attribute this “dovish repricing of Fed rate hike expectations in recent days” to “the cautious comments from the Fed’s leadership over the need for rate hikes.”
In particular, MUFG highlights remarks from New York Fed President John Williams, who said recent inflation data has been “encouraging” and that he sees “the trend in inflation moving slowly down as some of the effects of the tariffs move into the rearview mirror.” Williams also stressed that the Fed is “collecting a lot of data now, and will reassess whether rates remain in a good place for the economy.”
Meanwhile, investors await the United States (US) Nonfarm Payrolls (NFP) data for August, which will be published at 12:30 GMT.
Market experts believe that encouraging comments on inflation from Fed’s Williams has underscored the upcoming inflation data as key driver of monetary policy expectations over the official employment report.
MUFG said that it expects the upcoming labour market release to play a more limited role in shaping policy expectations against the backdrop of Fed Williams’s comments, stating: “we expect today’s nonfarm payrolls report to prove less important for Fed rate hike expectations than next week’s CPI report,” a dynamic they see as “helping to dampen the impact on US rates and the US dollar.”
AUD/USD Technical Analysis
In the daily chart, AUD/USD trades at 0.7203, maintaining a bullish near-term bias as spot holds above the 20-day exponential moving average (EMA) at 0.7136. The pair extends its advance after reclaiming this dynamic support, while the Relative Strength Index (RSI) at about 66 stays in bullish territory, suggesting buyers retain control even as conditions approach overbought.
On the downside, immediate support is seen at the 0.7200 area, with the 20-day EMA at 0.7136 acting as a secondary floor that would need to give way to signal a deeper correction. Looking up, the pair aims to revisit the four-year high near 0.7280.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Williams flags strong economy behind higher yields as inflation trend cools
Fed's Williams delivered a mildly hawkish-leaning message, with a 6/10 FXS Speechtracker score just above the 5.9/10 historical average, emphasizing that rising yields reflect a strong economy and robust outlook rather than worsening inflation expectations. The focus on tariffs and Middle East conflict as key drivers of above-target inflation, alongside contained expectations and a trend toward lower inflation with a stable labor market, signals confidence that the Fed can stay data-dependent while keeping 2% as the clear priority.
The FXS Fed Sentiment Index slipped by 1.42 points to 127.44, indicating a modest pullback in perceived hawkishness despite the still-elevated stance. With the index firmly above the 100 neutral line, markets continue to see policy as hawkish overall, but the slight decline suggests some easing in the perceived urgency for additional tightening relative to recent readings captured by the FXS Speechtracker.