AUD/USD reclaims 0.6500 as US Dollar weakens on dovish Fed expectations

• AUD/USD extends gains for the second straight day, climbing above the 0.6500 psychological level amid broad US Dollar weakness.
• Fed leadership uncertainty grows, as US President Trump hints at a shortlist of candidates to replace outgoing Governor Adriana Kugler.
• Fed speeches from Collins and Cook eyed next, as traders seek fresh policy signals following dovish remarks from Kashkari.

The Australian Dollar (AUD) extends its advance for the second consecutive day against the US Dollar (USD) on Wednesday, with AUD/USD climbing toward the 0.6500 psychological mark. The pair is buoyed by renewed weakness in the Greenback, as recent US economic data casts doubt on the resilience of the American economy. Signs of slowing growth and a softening labor market have fueled expectations that the Federal Reserve (Fed) will resume its rate-cutting cycle in September, triggering fresh downside in the US Dollar.

At the time of writing, AUD/USD is trading around 0.6505 during the American session, up nearly 0.50% on the day and marking its highest level since July 30. Meanwhile, the US Dollar Index (DXY), which measures the value of the Greenback against a basket of six major currencies, has broken below the lower end of its post-Nonfarm Payrolls (NFP) range, falling to a fresh weekly low near 98.25, after holding relatively steady over the previous two days.

The Greenback is also under pressure amid mounting uncertainty surrounding US President Donald Trump's expected nomination to fill the vacancy left by Fed Governor Adriana Kugler's surprise resignation last week. Market speculation is intensifying that Trump may nominate a candidate aligned with his economic agenda, possibly positioning them to succeed Jerome Powell as Fed Chair when his term ends in May 2026.

On Tuesday, Trump confirmed that a decision on filling the vacant Fed Governor seat will be made by the end of the week. Speaking to reporters, he revealed that the list of candidates for the next Fed Chair has been narrowed to four individuals. Trump named Kevin Hassett, his current economic adviser, and Kevin Warsh, a former Fed Governor, as "very good" options. While he did not disclose the remaining names, reports suggest that current Governor Christopher Waller, known for his dissenting views on recent rate decisions, is also under consideration. The potential shift in Fed leadership is injecting fresh uncertainty into the Dollar's outlook, particularly if a more dovish or politically aligned candidate emerges.

The Reserve Bank of Australia (RBA) is also expected to lower interest rates, as softer domestic inflation reinforces the case for policy easing. Markets are now fully pricing in a 25 basis point rate cut at the RBA's upcoming policy meeting on August 12, which would bring the cash rate down from 3.85% to 3.60%.

Looking ahead, traders will closely monitor upcoming speeches from Federal Reserve officials Susan Collins and Lisa Cook for fresh policy clues. Market participants will parse their remarks for confirmation of the Fed's evolving stance on interest rates, particularly in light of growing expectations for a rate cut in September. Earlier on Wednesday, Minneapolis Fed President Neel Kashkari said the US economy is slowing, with signs of a cooling labor market. Speaking to CNBC, he reiterated that two rate cuts this year still seem appropriate, adding that it may be time to begin adjusting the policy rate in the near term. Kashkari also flagged uncertainty around the inflationary impact of new tariffs, noting it's "still not clear" how they will feed through to price pressures.