The Australian dollar (AUD) appreciated against the US dollar (USD) on Monday, marking its second consecutive day of gains. This rise in the AUD/USD pair follows the People’s Bank of China (PBOC)’s decision to maintain its interest rates. Specifically, the one-year and five-year loan prime rates (LPR) remain unchanged at 3.00% and 3.50%, respectively. Given the close trading relationship between Australia and China, fluctuations in the Chinese economy can significantly influence the Australian dollar.
China’s gross domestic product (GDP) recorded a 4.8% growth year-on-year in the third quarter of 2025 (Q3), aligning with expectations after a 5.2% growth in the previous quarter. On a quarterly basis, economic growth was 1.1%, exceeding the market consensus of 0.8%.
In terms of retail sales for June, China saw an annual increase of 3.0%, surpassing the expected 2.9% for September despite a prior figure of 3.4%. Meanwhile, industrial production rose 6.5%, which was higher than the anticipated 5.0% and August’s 5.2%.
On Monday, the S&P/ASX 200 remained sluggish near 9,000, impacted by declines in gold and mining stocks from the previous session. However, easing trade tensions between the US and China might offer some support to the Australian stock market. Over the weekend, US President Donald Trump expressed optimism about a soybean deal with China, noting, “We can lower the tariffs that China pays, but they need to reciprocate.”
Despite the recent boost, the Australian dollar is facing pressure as the Reserve Bank of Australia (RBA) seems inclined to lower interest rates in November. The unemployment rate surged to 4.5% in September, the highest in nearly four years, which was above the previous 4.3% and market expectations.
USD Faces Challenges Amid Ongoing Government Shutdown
- The US Dollar Index (DXY), reflecting the dollar’s value against six major currencies, has stagnated around 98.50. This weakness comes as the US government shutdown continues into its 19th year, with no resolution in sight after multiple failed attempts by senators to resolve the deadlock. This is now the third longest funding shortfall in modern US history.
- St. Louis Fed President Alberto Moussallem remarked at a recent finance conference in Washington, D.C., that he might endorse further rate cuts if job risks escalate and inflation remains stable. He emphasized that the Fed shouldn’t adhere to a predetermined policy but instead maintain a balanced approach.
- Federal Reserve President Christopher Waller expressed his support for more interest rate cuts at the upcoming policy meeting, while new Fed President Stephen Milan advocated for a more aggressive reduction path through 2025 compared to his peers.
- Federal Reserve Chairman Jerome Powell indicated last week that the central bank intends to decrease interest rates by another quarter percentage point this month, noting that the government shutdown is adversely affecting economic projections. He emphasized the sluggish hiring pace and potential further slowing.
- Current market expectations point to a nearly 100% likelihood of a Fed rate cut in October and a 96% chance of an additional reduction in December, per the CME FedWatch tool.
- RBA Assistant Governor (Financial Markets) Christopher Kent mentioned at a recent investment conference that the recent interest rate cuts have alleviated financial constraints. He noted the bank is reassessing its outlook based on forthcoming data and risks, with the cash rate currently within a broadly uncertain neutral range.
- RBA Assistant Governor Sarah Hunter highlighted that recent economic figures were somewhat better than anticipated, suggesting inflation might also surprise on the upside in Q3. Despite this, she acknowledged ongoing high global uncertainty and indicated the Board would adjust policies as new information emerges. She also expects a slight moderation in consumer momentum during Q3.
Australian Dollar Breaking Above 0.6500, Testing 9-Day EMA
AUD/USD is trading around 0.6510 on Monday. Daily chart technical analysis reveals that the pair is operating within a descending channel, suggesting a consistent bearish outlook. The 14-day RSI remains below 50, which reinforces this negative sentiment.
On the downside, the AUD/USD pair may trend toward the lower boundary of the descending channel near 0.6430, following its four-month low of 0.6414 from August 21st. Additional support can be found at the five-month low of 0.6372.
This pair is currently testing an immediate resistance level at the 9-day exponential moving average (EMA) at 0.6517, with further obstacles at the 50-day EMA around 0.6547 and the top of the descending channel near 0.6580.
