Australian Dollar heads for weekly decline amid cautious Fed outlook

• AUD/USD extends losses for a third day, set for first weekly decline in four weeks.
• The Australian Dollar weakens as the Fed-driven Dollar rebound and soft jobs data weigh on the Aussie.
• Fed Governor Stephen Miran advocates deeper cuts, signaling internal divergence on future policy direction

The Australian Dollar (AUD) trades on the back foot against the US Dollar (USD) on Friday, with AUD/USD extending its decline for the third straight day. The pair is set to end the week in negative territory for the first time in four weeks, as the Greenback's post-Fed recovery continues to sap demand for risk-sensitive currencies.

At the time of writing, AUD/USD is trading around 0.6597, hovering near its lowest level in almost two weeks after reversing sharply from its highest level since October 2024, marked on Wednesday following the Federal Reserve's (Fed) monetary policy announcement.

The US central bank lowered the federal funds rate by 25 basis points (bps) to the 4.00%-4.25% range, broadly anticipated by markets. But Fed Chair Jerome Powell's press conference proved less dovish than expected, sparking a rebound in the US Dollar and yields, which weighed on the Aussie.

Powell emphasized that officials are in no rush to adjust policy further, calling the latest reduction a "risk-management cut" intended to support the economy as labor market conditions soften. He also noted that policy is "not on a preset course" and will stay data-dependent, underscoring a cautious rather than aggressive approach to easing.

Earlier on Friday, newly appointed Fed Governor Stephen Miran said he was the "bottom dot" in the Fed's latest Summary of Economic Projections (SEP), signaling his support for a more aggressive easing path. Miran noted he hopes to persuade colleagues to back deeper cuts, warning that keeping policy restrictive for too long risks damaging the labor market. He added that even a 50 bps reduction would not unsettle markets, calling it a measured pace.

The Australian Dollar's pressure intensified after domestic labor market figures released on Thursday highlighted underlying weakness. Employment Change fell by 5.4K in August, well below expectations of a 22K gain. Full-time employment fell sharply by 40.9K, while part-time employment rose by 35.5K. The participation rate slipped to 66.8% from 67.0%, and the unemployment rate held steady at 4.2%.