AUD/USD retreats as US dollar rebounds on Fed's cautious rate cut outlook

AUD/USD decline following US dollar surge

AUD/USD  finished lower last week at 0.6592 (-0.86%) retreating from last Wednesday's 11-month high of 0.6706.

The reversal in AUD/USD came as the United States (US) dollar surged higher after Federal Reserve (Fed) Chair Jerome Powell described last week's rate cut as a 'risk management cut.' This statement left the prospects of future rate cuts dependent on data, tempering expectations of the deep rate-cutting cycle that US dollar bears had anticipated.

US dollar index recovery and technical factors

Although even a shallower rate-cutting cycle should theoretically weigh on the US dollar, the short trade on the US dollar has become crowded. After a challenging start to the year, the US dollar index (DXY), which is a broad measure of the US dollar’s strength against a basket of major currencies, has lost downside momentum in recent months.

Technical factors have also played a role. Notably, DXY rebounded to finish last week back above significant long-term trendline support at approximately 96.70 to 96.50, dating back to the May 2011 low of 72.83.

Market outlook and upcoming economic indicators

At a minimum, this suggests potential consolidation for both AUD/USD and DXY as markets await the next US non-farm payrolls report in early October, which will provide clarity on the timing and extent of Fed rate cuts into year-end.

In the interim, the near-term direction of AUD/USD will likely depend on risk sentiment, this week’s Australian monthly consumer price index (CPI) indicator previewed below, and the upcoming US inflation update on Friday night.

AU monthly CPI indicator

Date: Wednesday, 24 September at 11.30am AEST

For July, the monthly CPI indicator rose by 2.8% year-on-year (YoY), accelerating sharply from 1.9% in June. Annual trimmed mean inflation surged to 2.7% YoY from 2.1% previously, reaching its highest level since March 2025.

Some of the strength was due to timing issues, particularly regarding electricity, hotel travel, and accommodation prices. The latter was impacted by the July school holidays, which saw strong demand for domestic airfares and accommodation.

Electricity prices rose significantly after households in New South Wales (NSW) and the Australian Capital Territory (ACT) did not receive payments from the extended Commonwealth Energy Bill Relief Fund (EBRF) in July. Payment of rebates for households in NSW and ACT will instead commence in August.

This month, the preliminary expectation is for headline inflation to rise to 2.9% YoY in August, while the trimmed mean is expected to ease fractionally to 2.6% YoY.

The Australian interest rate market starts the week pricing in 4 basis points (bp) of Reserve Bank of Australia (RBA) rate cuts for September and a total of 17 bp of rate cuts for RBA’s meeting in November. 

Monthly CPI indicator chart

AUD/USD technical analysis

Our technical outlook over the past few months has been for AUD/USD to rally towards a cluster of strong technical resistance near 0.6700.

This area includes:

• The upward bound of the sloping flag pattern/trend channel on the daily chart, which has contained AUD/USD for over five months
• The 200-week moving average at 0.6681
• Downtrend resistance on the weekly chart, originating from the 0.8007 high of February 2021.

As noted in last Monday’s AUD/USD update, 'The 0.6680 to 0.6700 resistance zone is expected to initially cap AUD/USD’s advance.'

While AUD/USD remains below the 0.6680 to 0.6700 resistance area, there is room for last week’s pullback in AUD/USD to deepen towards trend channel support at 0.6500.

However, if AUD/USD can make a sustained break above 0.6680 to 0.6710, it can then extend its gains towards the 0.6950 to 0.6970 resistance area.

AUD/USD weekly chart

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 22 September 2025. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}