**AUD/USD Hits Ten-Month Highs as Fed Rate Cut Bets Weigh on US Dollar**
*Based on reporting by Anil Panchal, FXStreet. Additional information incorporated for a comprehensive view.*
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### Overview
The Australian Dollar (AUD) surged to its highest level in ten months against the US Dollar (USD), driven by growing speculation that the US Federal Reserve may lower interest rates sooner rather than later. The AUD/USD currency pair’s rally is also supported by improving risk appetite, recent domestic economic data, and evolving expectations for major central banks globally.
### Market Drivers for AUD/USD Strength
#### 1. US Dollar Weakness
The US Dollar Index (DXY), which measures the greenback against six major benchmarks, has been under sustained pressure due to:
– **Federal Reserve Rate Cut Expectations**:
– Markets are increasingly pricing in rate cuts from the US Federal Reserve, likely due to a softening inflation trend.
– US Producer Price Index (PPI) data indicated weaker-than-expected wholesale inflation, supporting the dovish view.
– Policymakers, while noncommittal about the exact timing, have stopped short of pushing back against the possibility of rate cuts in the coming months.
– **Macroeconomic Indicators**:
– US inflation, as measured by the Consumer Price Index (CPI), has shown signs of moderating, further encouraging bets on monetary easing.
– The US labor market, though strong by historical standards, reflects pockets of softening, reducing the urgency for further tightening.
#### 2. Strengthening Australian Dollar
The Australian Dollar’s advance is supported by:
– **Solid Domestic Economic Data**:
– Australia’s labor market remains robust, with unemployment rates staying near historical lows.
– Recent Australian data on retail sales and business conditions pointed to steady economic momentum, bolstering confidence in the local currency.
– **Reserve Bank of Australia (RBA) Policy Stance**:
– The RBA has resisted market pressure to commit to imminent rate cuts, highlighting persistent cost-driven inflation in the service sector.
– Governor Michele Bullock’s recent commentary suggested the bank might maintain a restrictive policy for longer if necessary, providing underlying support for AUD.
– **Improved Global Risk Sentiment**:
– As a pro-cyclical currency, the AUD tends to benefit from increased risk appetite globally.
– Easing geopolitical tensions and stable commodity prices, especially in iron ore (Australia’s major export), have positively impacted the Aussie.
### Technical Analysis: AUD/USD at Key Levels
– The AUD/USD pair recently broke above key resistance at 0.6750, extending towards 0.6800—its highest zone since July of the previous year.
– Technical momentum favors further gains if the pair sustains above this level, with potential targets:
– 0.6830 (mid-July 2023 high)
– 0.6900 (
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