**AUD/USD Extends Rally as U.S. Rate Cut Bets Increase: In-Depth Analysis**
*Original reporting by Justin McQueen, with added research for context and completeness.*
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### Overview
The Australian dollar (AUD) has recently reached its strongest level in over two months against the U.S. dollar (USD), with the AUD/USD pair surging above 0.68. This rally is attributed largely to growing speculation that the U.S. Federal Reserve will start cutting interest rates sooner rather than later. The pair’s performance is being influenced not only by evolving expectations for U.S. monetary policy, but also by fresh economic data, risk sentiment across financial markets, and trends in the Chinese economy, which have a notable impact on the AUD as a key commodity currency.
This article reviews the factors currently driving AUD/USD, analyzes expert commentary and consensus on monetary policy, discusses technical levels, and places recent events in a broader economic context.
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## U.S. Inflation Data Fuels Rate Cut Speculation
The central catalyst for the recent rally in AUD/USD is a surprisingly soft U.S. Consumer Price Index (CPI) print released for June. The CPI data showed that inflation in the U.S. cooled more than economists had predicted, signaling that price growth is easing. This development is significant because it:
– Strengthens the argument that the Federal Reserve has achieved enough progress toward bringing inflation back to its 2 percent target.
– Reinforces expectations that the Fed will begin to lower rates in the coming months, potentially providing relief to the global economy by making borrowing cheaper.
Key data points from the June CPI print:
– Headline inflation rose by only 0.1 percent on the month, below market forecasts.
– The annual inflation rate slowed to 3 percent, also below expectations.
– Core inflation (excluding food and energy), a measure closely watched by the Fed, continued to moderate.
Economists and investors reacted quickly to the softer inflation data:
– U.S. Treasury yields slipped after the release, reflecting a reassessment of the likely path for interest rates.
– Equity markets responded positively, as lower yields and easier financial conditions tend to support risk assets.
– The U.S. dollar came under pressure against a range of currencies, including the AUD, as lower yields decrease its appeal.
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## Fed Officials Signal Openness to Easing
Reacting to the inflation numbers, several Federal Reserve officials made comments interpreted as dovish by the market. According to coverage by ForexFactory and Bloomberg:
– San Francisco Fed President Mary Daly commented that the inflation report was “good news” but highlighted the need for more data before making policy decisions.
– Fed Governor Christopher Waller echoed the view that while policy decisions are data-dependent, “the latest inflation numbers give us confidence in the progress to our target.”
Market pricing, as measured by Fed funds futures:
– Indicates a roughly 70 percent probability that the Fed will cut rates by 25 basis points at its September meeting.
– Im
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