AUD/USD Rallies to 0.6560 as Fed Rate-Cut Bets Pound the Greenback

The Australian Dollar is having a field day against its US counterpart, with AUD/USD climbing to near 0.6560 during Monday’s European session. What’s driving this rally? A perfect storm of dovish Fed rhetoric and weakening US economic signals that have traders scrambling to price in interest rate cuts sooner rather than later.

The Fed’s Shifting Tone Weighs on USD

The US Dollar is taking a beating, with the Dollar Index (DXY) sliding to 97.55—the lowest point in a month. The culprit? Growing conviction among Fed policymakers that rate cuts are coming this month. Fed Chair Jerome Powell and other FOMC members have turned increasingly dovish, openly discussing monetary easing amid deteriorating labor market conditions. Trump’s tariff policies have only amplified these concerns, pushing traders to bet heavily on near-term rate reductions.

Currency Performance Against USD (Monday):

• New Zealand Dollar: +0.33% (strongest performer)
• Australian Dollar: +0.16%
• British Pound: -0.26%
• Japanese Yen: +0.06%
• Canadian Dollar: -0.01%

The real story here is USD weakness across the board. When the Fed signals rate cuts, international capital flows shift rapidly—money that would’ve chased higher US yields now floods into alternative assets and currencies offering more stability.

Australia’s PMI Data Provides Support for AUD

While the US grapples with labor market jitters, Australia’s manufacturing sector is showing signs of life. The Caixin Manufacturing PMI came in at 50.5 for August, beating expectations and jumping from July’s 49.5 contraction reading. Anything above 50 signals expansion, so this uptick gives the Aussie a meaningful tailwind.

The contrast is striking: US policymakers are worried about job losses and considering rate cuts, while Australia’s business activity is accelerating. This divergence is classic AUD/USD bullish fuel.

What’s on the Calendar This Week

The real test for USD downside will come from employment data. Traders are eyeing:

• JOLTS Job Openings for July
• ADP Employment Change for August
• Nonfarm Payrolls (NFP) for August

Weak jobs data could send the Greenback even lower and push AUD/USD toward fresh resistance levels. Strong data might offer a brief reprieve for USD bulls, but the prevailing narrative—Fed cuts are coming—is unlikely to shift overnight.

Bottom Line: With the Fed in rate-cut mode and Australian economic data holding its own, AUD/USD has momentum on its side. The 0.60 AUD to USD conversion point remains a key technical level to watch for traders looking at medium-term moves in this pair.