The Australian dollar (AUD) appreciated against the US dollar (USD) on Thursday, building on a gain of over 0.25% from the previous day. The stability in the AUD/USD pair followed the release of Australia’s trade balance data.
In September, Australia’s trade surplus expanded to $3.938 billion, surpassing an earlier forecast of $3.85 billion and a revised figure of $1.111 billion from the previous month. Exports rose by 7.9% compared to August, marking a turnaround from the previous 8.7% drop. On the other hand, imports climbed by 1.1% month-on-month, down from a prior increase of 3.3% (revised from 3.2%).
The Australian dollar found support after China’s Ministry of Finance announced on Wednesday plans to lift some tariffs on US agricultural products starting November 10. Additionally, the ministry revealed a temporary suspension of 24% tariffs on selected US goods, while 10% tariffs will continue to apply.
Still, rising tensions between the US and China add uncertainty—China has ordered state-funded data centers to cease purchasing foreign chips. Given that China is Australia’s largest trading partner, fluctuations in its economy could influence the Australian dollar.
US dollar declines amid reduced chances of a Fed rate cut
- The US Dollar Index (DXY), reflecting the dollar’s value against six major currencies, continued to drop, trading near 100.00 at the moment. This decline occurred despite stronger-than-anticipated US economic reports released Wednesday.
- In October, US ADP employment rose by 42,000 jobs, a stark contrast to a drop of 29,000 jobs in September (revised from -32,000). This exceeded expectations of just 25,000. Also, the ISM Services PMI for October showed an increase to 52.4, up from 50.0, surpassing analysts’ predictions of 50.8.
- Traders in federal funds futures are now predicting a 62% likelihood of a rate cut in December, down from 68% the day before, according to the CME FedWatch tool.
- Federal Reserve Chairman Jerome Powell hinted at a cautious approach as more data is evaluated, while the ongoing government shutdown complicates matters. Powell emphasized that further rate cuts in December are not guaranteed, though Fed Director Stephen Milan suggested that more cuts could be appropriate.
- The US government deadlock has now extended into a sixth week, making it the longest funding impasse in history after the Senate again failed to pass temporary funding legislation. A recent attempt, led by Republicans, collapsed for the 14th time on Tuesday.
- This past Tuesday, the White House stated that China would suspend additional export restrictions on rare earths and cease investigations into US semiconductor companies, in return for the US delaying some tariffs and cancelling a proposed 100% tax on Chinese exports.
- President Donald Trump also revealed plans to cut fentanyl-related tariffs on imports from China, decreasing the tax from 20% to 10% while maintaining certain existing tariffs. This change is slated for November 10, as mentioned by Bloomberg.
- China’s Services PMI in October was recorded at 52.6, a slight decline from 52.9 in September but still matching market expectations. Conversely, the manufacturing PMI dropped to 50.6 from 51.2, missing the market forecast of 50.9. Changes in China’s economic conditions could have implications for the Australian dollar, given the close trade ties.
- The S&P Global Australia Services PMI rose to 52.5 in October from 52.4 in September, indicating sustained growth in services activity for a consecutive 21 months. However, the overall PMI dipped to 52.1 from 52.4.
- The Reserve Bank of Australia (RBA) chose to keep the Official Cash Rate (OCR) steady at 3.6% during its November meeting. RBA Governor Michelle Bullock noted that discussions about cutting interest rates aren’t happening, emphasizing the need to keep annual core inflation below 3%. She pointed out that the impact of previous rate cuts is still influencing the economy and that a cautious outlook is being considered.
- On Monday, the Melbourne Institute shared that the TD-MI inflation gauge increased by 0.3% month-on-month in October, slightly down from September’s 0.4% rise, yet signifying two consecutive months of gains. Yearly inflation increased to 3.1%, edging up from 3.0% previously.
The Australian dollar hovers around 0.6500 during consolidation
Currently, the AUD/USD pair is trading around 0.6500 on Thursday. A technical overview indicates that the pair is consolidating within a rectangular pattern, oscillating sideways. It remains beneath the nine-day exponential moving average (EMA), suggesting weak short-term momentum.
If the pair breaks below the psychological benchmark of 0.6500, it could test support at around 0.6460, followed by the five-month low of 0.6414 from August 21st. Additional support is noted at the six-month low of 0.6372.
Conversely, if it rallies, the first resistance level is at the 9-day EMA, currently at 0.6520, with the 50-day EMA following at 0.6539. A surge past these markers could boost both short and medium-term momentum for the AUD/USD pair, possibly pushing it toward the rectangular upper limit around 0.6630. Continued gains would signify a bullish trend and might lead closer to the 13-month high of 0.6707 noted on September 17th.
