Australian Dollar Retreats in Asia as Fed Rally Fades

Key Moments

Risk Sentiment Reverses After Fed-Driven Rally

Market action has been highly correlated across assets, with the latest move described as “all one trade at the moment.” AUD/USD has been giving back the gains it made following the Federal Reserve decision, a pattern that has also been evident in equity markets. During the Asian session, traders initially attempted to extend the post-Fed move, but momentum faded, prompting profit-taking.

Sentiment was further pressured by weakness in technology names tied to heavy artificial intelligence spending. Oracle shares came under significant pressure after earnings, reinforcing the “AI-overspend” narrative and contributing to the broader risk-off tone.

Australian Jobs Data Undermines the Currency

The Australian dollar has been underperforming its peers, with domestic data amplifying the downside. The latest labor market report showed the economy shed 21.3K jobs, sharply missing expectations for an increase of +20K. This negative surprise has added to selling pressure on AUD, as investors reassess the strength of Australia’s economic backdrop.

Fed Outlook Supports Global Growth, but Local and China Risks Persist

There is some positive news for the Australian dollar stemming from the Federal Reserve’s updated projections. The Fed’s median GDP forecast for 2026 was raised to 2.3% from 1.8%. This improvement is viewed as a constructive signal for global growth and, by extension, for demand for Australian commodity exports.

However, that tailwind is being offset by concerns elsewhere. Chinese equity markets have been under pressure recently, and confidence in a stronger growth path in Australia itself has not matched the more upbeat Fed projections. This combination has left AUD vulnerable despite the improved longer-term global growth outlook.

Waiting for a More Powerful Catalyst

The current environment suggests that the Fed on its own may not be sufficient to trigger a lasting shift in market direction. According to the commentary, investors may need to see a more powerful catalyst than recent Fed developments to truly reprice risk. There is even an indication that such a meaningful jolt to markets may not arrive until 2026, aligning with the time horizon of the Fed’s upgraded GDP forecast.