Australian Dollar Gains Momentum Amid Robust Private Sector Credit Growth and Dovish U.S. Fed Signals
August 29, 2025 | By Akhtar Faruqui
The Australian Dollar (AUD) showed resilience on Friday as it held steady against the U.S. Dollar (USD) following a series of gains earlier in the week. Market optimism for the AUD is supported primarily by Australia’s stronger-than-expected private sector credit growth and inflation data, while the USD faces downward pressure due to dovish tones from Federal Reserve officials ahead of critical upcoming inflation reports.
Private Sector Credit Growth Signals Economic Strength in Australia
Australia’s private sector credit expanded by 0.7% on a month-over-month basis in July, marking the fastest pace of growth since April 2025. This followed two consecutive monthly gains of 0.6%, reflecting sustained borrowing within the private sector. On an annualized basis, private credit growth accelerated to 7.2%, up from 6.9% in previous months, reaching its strongest pace since February 2023. This uptick in private sector borrowing is a positive sign for the domestic economy, suggesting that businesses and consumers are confident enough to increase spending and investment, which could propel further economic growth.
Inflation Data Bolsters Reserve Bank of Australia’s Stance
Further supporting the Australian Dollar was July’s consumer inflation data. The Monthly Consumer Price Index (CPI) rose 2.8% on a year-over-year basis, surpassing both the 1.9% increase recorded previously and the 2.3% forecast. Stronger inflation data decreases the likelihood of an immediate rate cut from the Reserve Bank of Australia (RBA), as maintaining price stability remains a priority amid robust economic activity.
However, the minutes from the RBA’s August policy meeting indicate that members anticipate further cash rate reductions over the next year. The timing and magnitude of these cuts will depend heavily on incoming economic data and global economic risks.
U.S. Dollar Under Pressure Ahead of Inflation Data
The U.S. Dollar Index (DXY), which measures the greenback against a basket of major currencies, traded near 97.90 at the time of reporting, showing slight gains amidst mixed signals about the Federal Reserve’s policy trajectory.
The U.S. economy demonstrated solid growth with a revised second-quarter Gross Domestic Product (GDP) annualized rate of 3.3%, exceeding earlier estimates. Nevertheless, market participants are focusing intently on the upcoming July Personal Consumption Expenditures (PCE) Price Index data—for both headline and core measures—as this will heavily influence the Fed’s policy decisions in September.
Fed Governor Christopher Waller expressed support for an interest-rate cut at the September meeting and projected possible further reductions within three to six months. This dovish stance contrasts with Fed Chair Jerome Powell’s remarks delivered at the Jackson Hole symposium, where he acknowledged rising labor market risks but maintained that inflation remains a significant threat.
Adding to uncertainty, former U.S. President Donald Trump recently announced the removal of Fed Governor Lisa Cook from her position, increasing speculation about more aggressive rate cuts amid political pressures on the Federal Reserve.
Trade and Technology Tensions Impact Market Sentiment
Geopolitical tensions also continue to loom over currency markets. President Trump’s threat of imposing additional tariffs and export restrictions on advanced technology and semiconductors in retaliation for foreign digital services taxes has stirred concerns.
Concurrently, China’s ambitions to triple its output of artificial intelligence processors next year highlight the broader technology race. Because of Australia’s close trade relationship with China, any developments in the Chinese economy are poised to influence the AUD’s trajectory.
Technical Outlook: AUD/USD Eyes Monthly Highs
At the time of writing, the AUD/USD pair was trading around 0.6540, exhibiting a slight bullish bias as it remained just above an ascending trendline on daily charts. The currency pair also held above its nine-day Exponential Moving Average (EMA), suggesting short-term momentum favors further gains.
Should upward momentum persist, AUD/USD could challenge the monthly high of 0.6568 reached on August 14 and possibly the nine-month high at 0.6625 recorded in July.
On the downside, immediate support is seen near the nine-day EMA at 0.6502 and the 50-day EMA at 0.6498, along with the ascending trendline around 0.6490. A decisive break below these levels could trigger bearish momentum and test lows near 0.6414 recorded earlier in August.
Australian Dollar Performance Against Major Currencies
Among major currency pairs today, the Australian Dollar was strongest against the Swiss Franc, bolstering its overall market positioning. Performance against other currencies showed moderate gains, with the AUD advancing 0.28% against the Euro and 0.19% versus the British Pound.
About Private Sector Credit
The Reserve Bank of Australia’s private sector credit figures measure the total borrowing undertaken by businesses and households. This metric serves as a vital economic indicator reflecting the capacity and willingness of the private sector to invest and spend. Robust credit growth is typically viewed as a positive forecast for economic expansion and therefore tends to support the Australian Dollar.
Looking Ahead
The coming days will be critical for the AUD/USD pair, with traders focusing on U.S. inflation data and continuing developments in global trade relations. While Australia’s strong private credit growth and inflation figures provide support, external factors such as Federal Reserve policy direction and geopolitical tensions remain significant headwinds or tailwinds for the Australian currency’s future movements.
Disclaimer: The information provided is for informational purposes only and should not be considered investment advice. Market conditions can change rapidly, and readers should conduct their own research before making any trading decisions.