AUD/USD steadies as markets assess central bank policy and growth prospects

• Fed Powell's hawkish tone limits US Dollar losses as markets continue to price in a September rate cut, providing temporary support for US Treasury yields.
• Australian inflation softens, raising expectations of an RBA rate cut in July. 
• AUD/USD hovers around 0.6500 as traders await the next fundamental drivers.

The Australian Dollar (AUD) is steadying against the US Dollar (USD), following a two-day rally that lifted AUD/USD back above 0.6500.

With risk-on sentiment returning to markets following Tuesday's confirmation of a ceasefire between Israel and Iran, the Australian Dollar has benefited from easing geopolitical tensions.

However, with prices now recovering above the 200-day Simple Moving Average (SMA), bullish momentum may be beginning to lose steam. As technical and fundamental factors contribute to driving price action, the relative performance of the two economies and interest rate expectations have returned to focus.

Australia's Monthly Consumer Price Index (CPI) data, released on Wednesday, revealed that price pressures continued to ease.

While analysts had anticipated the annual inflation rate to rise by 2.3% in May, the actual figure printed at 2.1%.

Australian monthly inflation data table for the period July 2024 - May 2025 - Source FXStreet

The softer inflation print raised expectations that the Reserve Bank of Australia (RBA) would announce another rate cut in July.

Attention then shifted back to the United States, where markets awaited more comments from Federal Reserve (Fed) Chair Jerome Powell. 

As Powell testified before the US Senate Committee on Banking, Housing and Urban Affairs, he continued to express optimism about the US economy. His comments, from Tuesday and Wednesday, have done little to change the projected trajectory for interest rates, at least not for now. This leaves expectations for a Fed rate cut priced in for September, which has offered some support to the US Dollar and Treasury yields.

Although diverging monetary policy should be lifting the US Dollar, the current economic uncertainty and weaker economic data are limiting its gains.

AUD/USD hovers around 0.6500, with prices remaining within the confines of a rising wedge

From a technical standpoint, AUD/USD continues to trade within the confines of a rising wedge formation on the daily chart. 

Prices are currently testing an important zone of technical confluency around the key psychological level of 0.6500. Support is forming at the 10-day Simple Moving Average (SMA) at 0.6490, which aligns with the lower boundary of the rising wedge pattern. 

A clear break of the 0.6500 level could see bulls aiming for a retest of the 61.80% Fibonacci retracement level of the September-April decline near 0.6550.

However, if bearish momentum builds, a move below the rising trendline support could see a deeper pullback to the mid-point of the above-mentioned move at 0.6428.