The AUD/USD pair surged to a near five-month high, reaching 0.6730 during Thursday’s American session. This impressive rally is attributed to growing speculation that the policy divergence between the Federal Reserve (Fed) and the Reserve Bank of Australia (RBA) is set to narrow.

Market Drivers: Rate Cut Expectations and Shifting Economic Landscape

• Fed Rate Cut Expectations: Increased anticipation of Fed rate cuts as early as September, fueled by weakening US economic data, has boosted the Australian Dollar (AUD). The market is now pricing in two rate cuts this year, exceeding the Fed’s own projections.
• US Economic Slowdown: Disappointing ISM Services PMI data and weaker-than-expected private sector job growth have raised concerns about the US economy’s health, further supporting the AUD’s ascent.
• RBA’s Hawkish Stance: Strong Australian retail sales data and concerns about persistent inflation have fueled expectations of further rate hikes by the RBA, adding to the Aussie’s appeal.

Technical Analysis: AUD/USD Upward Momentum Builds

The AUD/USD pair’s technical outlook remains bullish, with the recent surge confirming a strong upward momentum. The pair is currently trading above key moving averages, and a break above the 0.6750 resistance level could pave the way for further gains.

Key Takeaways:

• The Australian Dollar is rallying against the US Dollar as the Fed-RBA policy divergence narrows.
• Softer US economic data and stronger Australian data are supporting the AUD’s upward trajectory.
• Market expectations of Fed rate cuts are increasing, while the RBA is expected to maintain a hawkish stance.
• The technical outlook for the AUD/USD pair is bullish, with potential for further upside in the near term.