Australian Dollar gains ground above 0.7100 as US debt concerns weigh on US Dollar
- AUD/USD edges higher to around 0.7135 in Friday’s Asian session.
- Traders are still worried about growing US debt, undermining the US Dollar.
- RBA faces new pressure to pause rate hikes as unemployment rises again.
The AUD/USD pair gains traction to near 0.7135 during the Asian trading hours on Friday. The US Dollar (USD) weakens against the Australian Dollar (AUD) and is set for a weekly loss as traders viewed the US Treasury's bond buyback gambit as merely a temporary fix.
The preliminary readings of the US Purchasing Managers Index (PMI) are due later on Friday. US Treasury Secretary Scott Bessent said on Thursday that the Treasury could increase bond buybacks beyond $4 billion, partly to signal that current yields do not reflect underlying economic fundamentals. He stressed that interest rates have nothing to do with the buyback decision.
This action came after the department announced it would double the size of buybacks on longer-dated securities over the next quarter in an attempt to stem a sharp rise in yields. The Greenback has declined following these headlines as markets grew wary of the deteriorating fiscal picture and worries about the credibility of US institutions resurfaced.
On the other hand, disappointing Australian labor data might cap the upside for the pair. The Australian Bureau of Statistics revealed on Thursday that employment unexpectedly fell by 15,800 jobs in July. This figure came in weaker than the market expectations of 15,000 gains, pushing the Unemployment Rate up to 4.5%.
“The rise in unemployment marginally strengthens the case for the RBA to hold, particularly given broader signs of weakness in the economy,” said Ray White chief economist Nerida Conisbee.
Australia labour data softens as unemployment edges higher
Analysts at BNY highlight a further cooling in Australia’s employment backdrop, noting that the July 2026 Labour Force Survey “showed a softer labor market with the unemployment rate edging up to 4.5% from 4.4%.” This modest deterioration in job conditions, alongside earlier evidence of weaker participation and hours worked, reinforces concerns that the labour market is losing momentum just as gross federal debt climbs above AU$1tn and interest costs are projected to rise steadily toward 2030.
Fed’s Musalem flags upside inflation risks, keeps Dollar bulls alert despite cautious tone
Fed’s Musalem delivered a speech that aligns with the established baseline, with a 7/10 FXS Speechtracker score matching the historical average and signaling a steady, moderately hawkish stance. Emphasis on strong growth, accommodative financial conditions, underlying inflation stuck around 2.5%-3%, and the notion that hiking rates now could avert more aggressive action later underscores upside inflation risks even as Musalem stresses Fed credibility and policy independence from fiscal pressures. The acknowledgement of potential new supply shocks such as a “super El Nino” and crowded-out credit in parts of the economy adds a risk-aware tone that tempers the hawkish bias but still leans toward pre-emptive tightening rather than complacency.
The FXS Fed Sentiment Index slipped by 0.34 points to 132.42, indicating a modest pullback in perceived hawkishness while remaining firmly above the neutral 100 mark. This configuration suggests that, despite a slight softening in tone, the Fed narrative remains in hawkish territory, with Musalem’s remarks reinforcing a bias toward further tightening if inflation fails to converge convincingly toward the 2% target.
Technical Analysis: AUD/USD
In the daily chart, AUD/USD maintains a bullish near-term bias as price holds above the 100-day simple moving average (SMA) and the Bollinger middle band. The pair is pressing towards the upper Bollinger band, signaling an upside extension of the recent advance, while the Relative Strength Index (14) at 65.95 hovers just below overbought territory, hinting that bullish momentum remains firm but increasingly stretched.
On the topside, initial resistance is located at the upper Bollinger band near 0.7150, where buyers may hesitate after the latest run-up. On the downside, immediate support is seen at the 100-day SMA around 0.7070, followed by the Bollinger middle band near 0.7055, with a deeper cushion at the lower Bollinger band around 0.6958 if a broader corrective phase unfolds.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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