AUD/USD Defies Weak GDP as Fed Rate Cut Bets Keep USD on the Back Foot

The Australian Dollar is capturing attention this week as the AUD/USD pair climbs to fresh three-week highs, brushing aside disappointing economic growth figures. The resilience stems from a combination of factors: dovish Federal Reserve expectations are weighing on the US Dollar, while hawkish signals from Australia’s central bank are providing support to the Aussie.

Fed Rate Cut Expectations Spark USD Weakness, Benefiting AUD

The US Dollar remains under pressure as traders increasingly price in a December rate cut from the Federal Reserve. According to CME Group’s FedWatch Tool, markets are assigning a nearly 90% probability to a 25-basis-point reduction on December 10. This dovish Fed outlook has sent the Greenback to its lowest level since mid-November, creating a tailwind for risk-sensitive currencies like the Australian Dollar.

Beyond near-term rate cut bets, growing speculation around a dovish stance from the next Federal Reserve Chair is further undermining the safe-haven dollar. With equities buoyed by hopes of lower US borrowing costs and peace negotiations between Russia and Ukraine, investors are rotating away from defensive assets. This shift benefits the AUD, which tends to outperform during risk-on environments.

Upcoming US economic data will be crucial in determining the Fed’s trajectory. Traders are keenly awaiting the ADP employment report and ISM Services PMI. More critically, Friday’s Personal Consumption Expenditure (PCE) Price Index will provide fresh clues about inflation trends—a key factor shaping the Fed’s rate-cut path and, by extension, the future direction of the AUD/USD pair.

RBA Hawkish Tilt Offsets Australia’s Soft GDP Reading

While Australia’s economic performance disappointed, the Reserve Bank of Australia’s stance proved supportive for the local currency. On Wednesday, the Australian Bureau of Statistics released third-quarter GDP data showing growth slowed to 0.4% quarterly compared to the prior quarter’s 0.6%, falling short of consensus expectations of 0.7%. The annual growth rate stood at 2.1%, down from 1.8% previously—signaling a broadening slowdown across the economy.

Yet RBA Governor Michele Bullock’s comments struck a notably hawkish tone. Speaking before parliament, Bullock emphasized that the central bank is closely monitoring recent inflation data to assess which price pressures may be temporary. She cautioned that persistent inflation would have significant implications for future monetary policy—a clear signal against premature rate easing.

Recent inflation figures underscore why the RBA is holding its ground. Australia’s headline CPI accelerated to 3.8% year-over-year in October from 3.5% the prior month, while the RBA’s preferred Trimmed Mean CPI rose to 3.3% from 3.2%. Both metrics remain elevated above the RBA’s 2-3% target band, leaving limited room for policy accommodation. This inflation persistence, combined with Bullock’s firm messaging, tempers market expectations for additional rate cuts and provides fundamental support to the AUD.

Technical Setup Points to Further Upside for AUD/USD

From a technical perspective, the AUD/USD pair has positioned itself constructively above key resistance levels. A recent breakout through a descending trend-line dating back to September’s swing high, combined with acceptance above the 100-day Simple Moving Average, has shifted momentum in favor of the bulls.

Daily chart oscillators are building positive traction while remaining comfortably below overbought levels, validating the near-term bullish bias. Traders may interpret any pullback towards the 0.6535-0.6530 confluence zone—now acting as support after the breakout—as a tactical buying opportunity rather than a reversal signal.

On the upside, a sustained push above the psychological 0.6500 level opens the path toward the 0.6535-0.6565 region. Breaking decisively above this zone could propel the pair toward the 0.6600 mark. If momentum continues, AUD/USD could eventually test the 0.6660-0.6665 hurdle before potentially challenging the year-to-date high near 0.6700, achieved in September.

To the downside, a breakdown below 0.6500 would weaken the constructive setup, putting the 200-day SMA near 0.6465 in play. Further losses could extend toward the multi-month low of 0.6420 recorded in November. A decisive close below 0.6400 would signal fresh weakness and invite deeper selling pressure.

What’s Next for AUD/USD Traders?

The fundamental backdrop tilts in favor of higher prices, underpinned by Fed dovishness and RBA resolve. The Australian Dollar has demonstrated remarkable resilience despite soft domestic data, suggesting that global monetary policy divergence—not local economic weakness—is the dominant driver. Traders should monitor the upcoming ADP report, ISM Services PMI, and especially Friday’s PCE data for confirmation of the Fed’s easing cycle. Until those data points redirect expectations, the AUD/USD pair appears positioned to probe higher levels.