• AUD/USD extends gains for a second day, nears the 0.6500 psychological mark.
• Australian wage growth beats expectations, supporting the AUD even as markets continue to price in an RBA rate cut.
• Weaker US CPI data drags the DXY below 100.00, pressuring the US Dollar.
  
  

The Australian Dollar (AUD) strengthened further against the US Dollar (USD) on Wednesday, with the AUD/USD pair rising close to the 0.6500 psychological level, up nearly 2% so far this week, buoyed by a combination of weaker US Consumer Price Index (CPI) data and stronger-than-expected wage growth in Australia.

The US Dollar Index (DXY) fell below the 100.00 level after US Consumer Price Index (CPI) data released on Tuesday came in softer than expected, reinforcing expectations that the Federal Reserve (Fed) may consider policy easing later this year. However, for now, the Fed maintains a cautious tone, citing ongoing economic uncertainties. 

On the domestic front, Australia’s Wage Price Index rose by 3.4% YoY in Q1, up from a 3.2% increase in Q4 2024 and beating market forecasts of 3.2%. On a quarterly basis, wages climbed by 0.9%, accelerating from 0.7% in the previous quarter, also above the forecast of 0.8%.

Looking ahead, the Reserve Bank of Australia (RBA) is widely expected to cut interest rates at its May 20 meeting. According to the ASX RBA Rate Tracker, markets are currently pricing in a 54% probability of a 50-basis-point cut to 3.60% from the current 4.10%, reflecting rising confidence in near-term monetary easing by the central bank.

This emerging policy divergence between the Fed and the RBA is adding further directional cues to AUD/USD. While the Fed holds steady, the RBA appears to be more inclined toward rate cuts to support growth amid a patchy economic recovery. Such a scenario should benefit the USD and weigh on the AUD in the mid-term.

The US economic calendar is light on Wednesday, without any top-tier indicators due to be published. Still, two Federal Reserve officials – Vice Chair Philip Jefferson and San Francisco Fed President Mary Daly – are set to speak. Their words about how they see US interest rates going forward could move the US Dollar and thus the AUD/USD pair. 

On Thursday, new data can move the needle: Australia will publish its employment report for April, while in the US, the Producer Price Index (PPI), Retail Sales, and Jobless Claims data will be released.

Technical analysis: AUD/USD eyes breakout above 0.6500

AUD/USD is trading near 0.6480 at the time of writing, approaching the key resistance at 0.6500, which aligns closely with the previous week’s high. A decisive break above this level could expose the next upside target at 0.6700, a level last seen in November 2024.

On the downside, the 200-day Exponential Moving Average (EMA) at 0.6410 offers strong dynamic support, followed by the horizontal support at 0.6350, which has acted as a key pivot in recent months.

The Relative Strength Index (RSI) on the daily chart stands at 59, suggesting positive momentum without being overbought, leaving room for further gains if bullish pressure persists.