The Australian dollar is gaining momentum against the US dollar, pushing toward the key psychological level of 0.6600. As of Tuesday, AUD/USD climbed to 0.6590—its highest level this year—after reversing earlier losses. This upward movement comes amid a broad weakening of the US dollar, supported by shifting market expectations around Federal Reserve policy and fresh economic data from China.
With major economic events on the horizon—including a highly anticipated speech from Federal Reserve Chair Jerome Powell and the release of US JOLTS job openings data—traders are closely watching for signals that could shape the near-term direction of both the dollar and risk-sensitive currencies like the Aussie.
China's Manufacturing Rebound Boosts Risk Sentiment
A key driver behind the AUD/USD rally has been the surprisingly strong rebound in Chinese manufacturing activity. The Caixin Manufacturing Purchasing Managers’ Index (PMI), released on Tuesday, came in at 50.4 for June—well above the expected 49.0 and a significant jump from the previous reading of 48.3.
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This marks a return to expansion territory (above the 50.0 threshold), indicating improved business conditions across China’s manufacturing sector. Since Australia is a major exporter of raw materials to China, positive Chinese economic data often translates directly into stronger demand for the Australian dollar.
The Caixin PMI, compiled by S&P Global, surveys purchasing managers across both private and state-owned enterprises, offering a timely snapshot of industrial health. Unlike the official NBS PMI—which had shown weakness earlier in the week—the Caixin index reflects more private-sector dynamics and suggests underlying resilience in China’s economy.
This optimism helped offset concerns from other fronts and provided a solid foundation for risk-on sentiment, benefiting not only AUD but also other commodity-linked currencies.
US Dollar Under Pressure on Multiple Fronts
Meanwhile, the US dollar continues to struggle under a combination of macroeconomic and policy-related pressures:
- Rising debt concerns: A proposed sweeping tax bill under former President Trump’s administration is projected to add $3.3 trillion to the national debt, sparking renewed worries about fiscal sustainability.
- Trade uncertainty: With a July 9 deadline approaching for potential new tariffs on EU goods, markets remain on edge. Although reports suggest a temporary extension of negotiations, the threat of escalating trade tensions looms large.
- Dovish Fed expectations: Investors are increasingly pricing in multiple rate cuts by the Federal Reserve in the second half of 2025, driven by cooling inflation and signs of labor market softening.
These factors have contributed to a notable decline in the US Dollar Index (DXY), which has now fallen for six consecutive months—from over 110 at the start of the year to below 97.1 as of June 30. That represents a drop of more than 11%, marking one of the most dramatic first-half declines in recent history.
Key Events to Watch: Powell Speech and JOLTS Data
All eyes are now on two pivotal events that could influence monetary policy expectations:
Federal Reserve Chair Jerome Powell’s Speech
Scheduled to speak at the central bank forum in Sintra, Portugal, Powell’s remarks will be scrutinized for clues about the timing and pace of potential rate cuts. While he may avoid making definitive commitments, any shift toward a more dovish tone could further pressure the dollar.
Market participants are particularly interested in whether Powell acknowledges growing risks to employment or inflation targets—and whether he sees room to ease policy without reigniting price pressures.
US JOLTS Job Openings Report
Released just ahead of Powell’s appearance, the JOLTS data showed 7.391 million job openings in May—surpassing both the forecast of 7.1 million and the prior month’s revised figure of 7.192 million.
While a strong labor market typically supports the dollar, today’s reaction has been muted. The increase may reflect lingering mismatches in hiring rather than broad-based economic strength. Moreover, with wage growth moderating and consumer spending showing signs of fatigue, investors appear more focused on forward-looking indicators than current labor tightness.
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Broader Market Implications
The weakening dollar isn’t just affecting AUD/USD—it’s reshaping global currency dynamics:
- EUR/USD rose to 1.1390, boosted by delayed EU tariff threats.
- USD/JPY has declined by nearly 9% year-to-date, reflecting divergent monetary policies between the Fed and Bank of Japan.
- Even Bitcoin (BTC) remains resilient near $107,000 despite minor pullbacks, as institutional adoption grows among firms like Strategy, Blockchain Group, and Metaplanet, which are adding BTC to corporate treasuries.
These trends underscore a broader shift: as confidence in US economic exceptionalism wanes, capital is reallocating across asset classes and geographies.
Frequently Asked Questions (FAQ)
Q: Why is AUD/USD rising?
A: The pair is rising due to stronger-than-expected Chinese manufacturing data, a weakening US dollar, and growing expectations of Fed rate cuts in late 2025.
Q: What does the Caixin PMI indicate for AUD?
A: A reading above 50 signals expansion in China’s manufacturing sector, which increases demand for Australian exports and supports AUD strength.
Q: How do JOLTS job openings affect the USD?
A: Higher job openings can support USD by signaling labor market strength, but if accompanied by slowing wage growth or hiring difficulties, the impact may be neutral or even negative if it hints at economic imbalances.
Q: What will Powell’s speech likely focus on?
A: Expect discussion on inflation progress, labor market evolution, and risks to economic outlook—any hint of earlier rate cuts could weaken the dollar further.
Q: Is the dollar’s decline sustainable?
A: Continued fiscal deficits, political uncertainty, and divergent global monetary policies could keep downward pressure on USD through 2025 unless growth or inflation rebounds sharply.
Q: How does trade policy affect AUD/USD?
A: Escalating US-China or US-EU trade tensions tend to hurt risk sentiment and commodity demand, weighing on AUD. Conversely, de-escalation supports Aussie strength.
With momentum building behind risk assets and central banks moving toward easing, traders should remain alert to volatility around central bank commentary and economic surprises.
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