AUD/USD climbs as Trump's Fed reshaping and rising Australian inflation drive gains

Surprising inflation figures boost AUD/USD to weekly highs

AUD/USD finished higher last week at 0.6539 (0.73%), extending its gains from the 0.6414 low it struck prior to Federal Reserve (Fed) Chair Jerome Powell’s surprisingly dovish speech at Jackson Hole ten days ago.

AUD/USD’s advance last week was bolstered by hotter-than-expected Australian monthly consumer price index (CPI) data, with annual trimmed mean inflation rising to 2.7% in July from 2.1% in June. This rise prompted the Australian interest rate market to scale back expectations of a Reserve Bank of Australia (RBA) rate cut in September.

Political influence on currency markets

AUD/USD also benefited from United States (US) President Donald Trump’s attempt to remove Fed Governor Lisa Cook as part of his ongoing efforts to reshape the Federal Open Market Committee (FOMC) and push for earlier and deeper rate cuts. Trump’s call for rate cuts contrasts with persistent US inflation, which has exceeded the Fed’s 2% target for over four years.

His claim today on Truth Social that US prices are ‘WAY DOWN’ with ‘virtually no inflation’ further muddies the narrative. In short, political pressure on the Fed to cut rates amid high inflation risks reigniting the ‘sell US assets’ theme, similar to earlier this year.

Upcoming economic indicators

Looking ahead, AUD/USD’s near-term direction will likely hinge on Australia’s second-quarter (Q2) gross domestic product (GDP) data and US employment figures due this week.

AU: Q2 GDP

Date: Wednesday, 3 September at 11.30pm AEST

In the first quarter (Q1) of 2025, Australian GDP increased by 0.2% month-over-month (MoM), decelerating from 0.6% prior, for an annual rate of 1.3%. It was the Australian economy's 14th consecutive quarter of growth.

Katherine Keenan, Australian Bureau of Statistics (ABS) head of national accounts, said: 'Economic growth was soft in the March quarter. Public spending recorded the largest detraction from growth since the September quarter 2017. Extreme weather events reduced domestic final demand and exports. Weather impacts were particularly evident in mining, tourism, and shipping.’

As we await the final components that feed into Wednesday's GDP release, the preliminary forecast is for a rise of 0.5% quarter-over-quarter (QoQ), lifting the annual growth rate to 1.6% (from 1.3% previously), on target to achieve the RBA’s forecast of 1.6% (revised lower from 1.8% prior) for June 2025.

If this forecast proves accurate, it will support the case for further easing of monetary policy as it indicates that the Australian economy is continuing to grow at a pace significantly below its potential growth rate of 2.5% - 3%.

The Australian interest rate market is pricing in 25 basis points (bp) of rate cuts for the RBA’s meeting on 4 November and a cumulative 33 bp of rate cuts for the RBA’s 9 December meeting.

AU GDP chart

AUD/USD technical analysis

AUD/USD has spent the past four and a half months trading sideways to higher within an upwards sloping flag pattern/trend channel, consolidating and extending its rebound from the April 0.5912 low. Notably, the consolidation over the past two months has occurred above the 200-day moving average (MA) currently at 0.6386.

Looking ahead, while AUD/USD remains within its upward sloping flag, allow for a further continuation of the ‘two steps forward, one step back’ pattern of trading viewed over the past four months as it grinds its way to 0.6700.

Aware that if AUD/USD were to see a sustained break of trend channel support at 0.6460 - 0.6450 and then below the August double low at 0.6415ish and finally below the 200-day MA at 0.6386, it would indicate AUD/USD has broken lower, with scope back to 0.6200.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 1 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.}