The Australian Dollar (AUD) has experienced a remarkable rally against the US Dollar (USD) since hitting a low of 0.64 on April 19th. As of Friday, the pair is trading above 0.67, marking a significant 4.8% appreciation. This impressive performance comes despite the weakening of the Japanese Yen (JPY) and Chinese Yuan (CNY), Australia’s two largest trading partners.

Driving Forces Behind the Aussie’s Ascent

Several factors have contributed to the AUD’s recent strength:

• Diverging Inflation Trends: Australia’s Consumer Price Index (CPI) inflation reached a six-month high of 4% in April-May, while US PCE inflation fell to a three-month low of 2.6%.
• Contrasting Employment Data: Australia’s unemployment rate declined to 4%, while the US rate slightly increased to 4%.
• Strong Retail Sales Growth: Australian retail sales accelerated to 0.6% month-over-month (MoM), compared to a contraction in US retail sales excluding autos.
• RBA Rate Hike Expectations: Interest rate futures are suggesting a possibility of another rate hike by the Reserve Bank of Australia (RBA) this year due to persistent inflation concerns.
• Fed Rate Cut Expectations: The likelihood of a Fed rate cut in September has increased significantly, further boosting the AUD’s appeal against the USD.

Technical Outlook and Future Potential

The AUD/USD pair’s technical outlook remains bullish, with the recent breakout above 0.67 confirming its upward momentum. However, traders are closely watching upcoming economic data releases and central bank decisions for further clues on the pair’s trajectory.