The Australian dollar (AUD) dropped against the US dollar (USD) on Wednesday, following a gain of over 0.25% the day before. Concerns surrounding surging valuations in artificial intelligence have contributed to a decline in global equities, creating a negative sentiment that’s impacting the Australian dollar. This weakness in AUD/USD highlights the ongoing risk aversion, especially given Australia’s heavy reliance on commodity exports, which adds to its vulnerability during these times.
In contrast, Australia’s wage price index, adjusted for seasonal trends, observed a 0.8% increase in the third quarter, a figure that matched the previous quarter’s performance and aligned with market expectations. Annually, wages rose by 3.4%, again consistent with prior trends and expectations.
Minutes from the Reserve Bank of Australia’s (RBA) November meeting indicated a more balanced approach to policy, suggesting the cash rate might remain steady for an extended period if future data proves better than anticipated.
There’s potential for a recovery in the Australian dollar if domestic employment data remains strong, possibly prompting the RBA to adopt a cautious stance. As of the latest update on November 18, the ASX cash rate futures for December 2025 reflected a mere 8% chance of a rate cut from 3.60% to 3.35% in the upcoming RBA meeting.
USD remains stable as Fed rate cut expectations diminish
- The US dollar index (DXY) stayed stable, trading around 99.60 as of the current moment, buoyed by reduced expectations for a December interest rate cut from the Federal Reserve.
- Markets are now assigning a 49% probability that the Fed will lower the benchmark overnight borrowing rate by 25 basis points at its December meeting, a decrease from the 67% likelihood noted just a week ago, according to the CME FedWatch tool.
- Federal Reserve Vice Chairman Philip Jefferson remarked on Monday that concerns regarding the labor market now outweigh the potential risks associated with inflation, advocating for a gradual approach to further interest rate cuts.
- Kansas City Fed President Jeffrey Schmidt expressed that monetary policy should favor demand growth, believing the current Fed stance is “moderately restrictive” and appropriate.
- Data released by the U.S. Department of Labor on Tuesday revealed 232,000 new unemployment claims, with continuing claims totaling 1.957 million for the week ending October 18, a slight increase from the previous week’s 1.926 million. Notably, the data from the last three weeks is unavailable for the initial claim. Meanwhile, the ADP report indicated that employers averaged 2,500 job cuts per week in the four weeks ending November 1.
- Kevin Hassett, Director of the National Economic Council, cautioned that some October data may “never materialize” due to difficulties in data collection during the government shutdown. Initial reports from the private sector hint at a cooling labor market alongside declining consumer confidence amid ongoing inflation concerns.
- RBA Deputy Governor Andrew Hauser commented last week, indicating the committee believes monetary policy should stay restrictive, and any move towards a less restrictive approach could significantly influence future decisions.
- The Australian Bureau of Statistics (ABS) reported a drop in the unemployment rate for October to 4.3%, down from September’s 4.5%, which surprised market expectations of 4.4%. On the employment front, an increase of 42,000 jobs was noted for the month, significantly rising from last year’s revised 12,000 and far above the market’s prediction of 20,000.
The Australian dollar hovers below 0.6500 near the 9-day EMA.
The AUD/USD exchange rate was approximately 0.6490 on Wednesday. Analyzing the daily chart reveals that the pair is consolidating within a rectangular range, indicating sideways price action. Additionally, it remains below the 9-day exponential moving average (EMA), reflecting a bearish trend.
Looking downward, the AUD/USD could encounter significant support around the lower boundary near 0.6470, with a five-month low of 0.6414 marked on August 21 representing a subsequent point of interest.
The initial resistance lies at the psychological 0.6500 level, followed by the 9-day EMA at 0.6514. A breakthrough in this resistance zone could enhance short-term price momentum and possibly push the pair towards the upper limit of the rectangle around 0.6630.
