AUD Holds Firm as RBA Hawkish Rate Outlook Supports

During Thursday's European trading session, AUD/USD was last quoted at 0.71808, up 0.1% on the day, with the Australian dollar continuing to outperform the U.S. dollar this week as the exchange rate maintains a firm tone.

**RBA's Hawkish Stance Supports the Currency**

The Australian dollar's recent resilience is mainly driven by the relatively tighter policy expectations from the Reserve Bank of Australia. Market reports indicate that the RBA kept the cash rate target unchanged at 4.35% at its latest meeting while stressing that inflation remains elevated and the outlook is uncertain, a stance interpreted by markets as hawkish. In contrast, U.S. inflation and employment data have weakened in tandem, cooling market expectations for further Federal Reserve rate hikes, which has weighed on the U.S. dollar index and provided additional upside momentum for the Aussie.

**Weaker USD Amplifies AUD's Advantage**

According to CME Group analysis, U.S. July inflation and employment data came in broadly soft, leading markets to significantly trim the probability of a Fed rate hike in September, with the dollar index briefly dipping to around 99.9. Against a broadly weaker greenback, non-USD currencies showed mixed performance, while the Aussie, supported by the RBA's hawkish tone, held above the 0.7000 level and gradually moved higher. Analysts point out that the divergence in monetary policy expectations between Australia and the U.S. is the core driver behind the Aussie's recent strength.

**Upcoming Data and Events in Focus**

Looking ahead, market attention will shift to the Fed meeting minutes as well as inflation and PMI data from major economies. If U.S. economic data further confirms a cooling trend, the dollar may extend its decline, offering continued support for the Aussie. However, should Fed officials signal room for further rate hikes or risk aversion intensify, the Aussie's upward trajectory could face disruptions. Overall, unless the RBA's policy outlook shifts significantly, AUD/USD is expected to remain in a firm but rangebound pattern.