The Australian Dollar (AUD) experienced a decline against the US Dollar (USD) on Thursday as traders exhibited caution ahead of the upcoming US inflation data for September, which is set to be released on Friday. The AUD gained some support following remarks from US President Donald Trump, who expressed optimism about reaching agreements with Chinese President Xi Jinping during their scheduled meeting in South Korea. Any changes in China’s economic landscape could have significant repercussions for the Australian dollar, particularly due to the deep trade connections between China and Australia.
The AUD/USD pair is facing increased pressure as speculation mounts regarding a potential interest rate cut by the Reserve Bank of Australia (RBA). The latest employment figures marked a surprising rise in the jobless rate to its highest level in almost four years, with September’s rates reaching levels that rattled markets. The unexpected rise has driven predictions for a 25-basis-point rate cut to 70%, escalating from around 40% just a week ago. Traders are now vigilant for economic indicators, including this week’s flash PMI readings and the crucial Q3 CPI figures next week, to gauge the RBA’s forthcoming decisions.
Further bolstering the AUD, improved market sentiment following progress in US-Australia trade relations has been noted. President Trump and Australian Prime Minister Anthony Albanese recently inked a critical minerals agreement worth USD 8.5 billion in the White House, aimed at securing access to Australia’s rich supply of rare-earth resources in light of escalating Chinese export controls. Both nations have also pledged to invest a minimum of USD 1 billion each in mining and processing projects over the next six months.
Meanwhile, the US Dollar has been on an upswing, buoyed by Trump’s assertions about prospective agreements with China. The US Dollar Index (DXY), representing the USD against six major currencies, showed gains and hovered around 99.00. The dollar’s strength is overshadowed, however, by the uncertainty stemming from the ongoing US government shutdown, which has entered its fourth week and is delaying the release of key economic data, such as the Nonfarm Payrolls (NFP). The latest Senate vote, which failed to advance a measure to fund the government, marked the 11th unsuccessful attempt and contributes to the prolonged uncertainty affecting financial markets and the Federal Reserve.
In a recent Reuters poll, an overwhelming majority of economists indicated expectations of a Fed interest rate cut by 25 basis points to a range of 3.75%-4.00% in the forthcoming monetary policy announcement on October 29. For the remainder of the year, a substantial number, particularly 83 out of 117 economists, foresee two rate cuts, while 32 predict only one. The markets, according to the CME FedWatch Tool, are now pricing in nearly a 97% likelihood of a rate cut in October, with a 96% chance for another reduction in December.
On another front, the People’s Bank of China (PBOC) opted to maintain its one- and five-year Loan Prime Rates (LPRs) at 3.00% and 3.50%, respectively. China’s economy has shown signs of stability, with the Gross Domestic Product (GDP) growing 4.8% year-over-year in the third quarter, accompanied by significant quarterly expansion that surpassed forecasts. Furthermore, September’s retail sales and industrial production figures exceeded market expectations.
As for the AUD/USD pair trading dynamics, it currently hovers around 0.6490. A technical analysis indicates a bearish trend, as the pair moves within a descending channel, with the 14-day RSI remaining below 50. On the downside, potential targets for the AUD/USD include the four-month low of 0.6414 and the psychological barrier near 0.6400. A breakthrough in this support zone could solidify the downtrend, pushing the pair toward a five-month low at 0.6372. Conversely, any upward movement will encounter resistance at the 0.6500 psychological level, which aligns with the nine-day Exponential Moving Average (EMA). A successful breach could improve short-term momentum and lead to tests of higher resistance levels.
