The Australian dollar (AUD) experienced a decline against the US dollar (USD) on Tuesday, giving up some earlier gains. Despite this, there was a silver lining as market sentiment improved due to advancements in the US-Australia trade agreement, leading to a strengthening of the AUD/USD pair.
On Monday, US President Donald Trump and Australian Prime Minister Anthony Albanese inked a significant $8.5 billion deal focused on critical minerals at the White House. The agreement aims to secure access to Australia’s valuable rare earth resources amid tightening export regulations from China.
Both nations have pledged to invest a minimum of $1 billion each into mining and processing initiatives over the next six months. They also agreed to establish price floors for these critical minerals. President Trump mentioned that the deal had involved “months of negotiation,” while Prime Minister Albanese stated that it elevates the US-Australia partnership to a new level.
In addition, President Trump expressed his hopes for a “fair agreement” with Chinese President Xi Jinping during an upcoming meeting in South Korea, which might ease current trade tensions. However, US Trade Representative Jamieson Greer maintained a firmer stance, accusing the Chinese government of widespread “economic coercion” that targets companies with strategic investments in essential US industries. Given the close trade ties between China and Australia, shifts in China’s economic landscape could significantly influence the Australian dollar (AUD).
USD rises amid risk aversion
- The US Dollar Index (DXY), which gauges the USD against six major currencies, is on the rise after bouncing back from earlier losses, currently trading around 98.70. Still, the US dollar faces challenges as the ongoing government shutdown casts a shadow over the economic outlook.
- The federal government shutdown has now reached its third week, with no clear resolution in sight, stemming from a partisan standoff in the Senate regarding funding priorities. This marks one of the longest funding shortfalls in recent history.
- St. Louis Fed President Alberto Moussallem spoke at the Association of International Finance’s annual meeting in Washington, D.C., on Friday. He indicated potential support for further rate cuts if job risks heighten and inflation is managed. Moussallem stressed that the Fed should adopt a balanced approach rather than stick to preset policies.
- Federal Reserve President Christopher Waller supported additional interest rate cuts in this month’s policy meeting. In the meantime, new Fed President Stephen Milan emphasized a more aggressive rate-cut strategy through 2025 than his colleagues prefer.
- Fed Chairman Jerome Powell indicated last week that the central bank intends to cut rates by an additional quarter-point later this month, even as the government shutdown significantly clouds the economic outlook. He noted a slowing rate of hiring, with a potential for it to decrease even further.
- Market expectations are nearly 99% in favor of a rate cut from the Fed in October, and similarly for another cut in December, according to the CME FedWatch tool.
- The People’s Bank of China opted to keep the one-year and five-year loan prime rates (LPR) steady at 3.00% and 3.50%, respectively, as of Monday.
- China’s GDP grew by 4.8% year-on-year in the third quarter of 2025, as anticipated, following a 5.2% increase in the second quarter. On a quarterly basis, growth was reported at 1.1%, surpassing the market forecast of 0.8%.
- Retail sales in China for June recorded a 3.0% rise in September, outpacing the expected 2.9% but slightly down from 3.4% previously. Additionally, industrial production surged by 6.5%, exceeding the anticipated 5.0% growth and 5.2% in August.
- The Reserve Bank of Australia (RBA) is anticipated to lower interest rates in November following an unexpected uptick in the unemployment rate to 4.5% in September—its highest in nearly four years, which was above market expectations and the previous figure of 4.3%.
Australian dollar struggles to surpass 9-day EMA with a bearish trend
The AUD/USD is trading close to 0.6510 on Tuesday. A technical analysis of the daily chart indicates the pair is within a downward channel, suggesting a prevalent bearish trend. The 14-day RSI remains below 50, which further strengthens this bearish outlook.
On the downside, the AUD/USD pair is likely to hover near the lower boundary of the descending channel, consistent with the four-month low of 0.6414 set on August 21. If it drops below this support level, the bearish trend may escalate, potentially leading to a test of the five-month low at 0.6372.
The AUD/USD is currently facing resistance at the 9-day exponential moving average (EMA) at 0.6517, followed by the 50-day EMA around 0.6546, and then the upper limit of the descending channel near 0.6570.
