The Australian dollar (AUD) experienced a drop against the US dollar (USD) on Friday, marking a decline for the second day in a row. The AUD/USD exchange rate hit a standstill as China’s trade balance for October was reported at 640.4 billion yuan, a decrease from 645.47 billion yuan the month prior.
China’s exports saw a year-on-year decline of 0.8% in October, a stark contrast to September’s more significant 8.4% drop. On the other hand, imports grew by 1.4% year-on-year during this period, in comparison to the previous record of 7.5%.
When looking at USD figures, China’s trade surplus in October grew less than anticipated. The trade balance showed +9.007 billion, falling short of expectations set at +9.56 billion and significantly lower than +90.45 projected earlier.
There’s a chance the Australian dollar could regain some strength if the US government proceeds with lifting sanctions on China’s shipbuilding industry, potentially easing trade strains between these two major economies. The Office of the United States Trade Representative has called for public feedback regarding the suspension of tariffs on Chinese imports for one year.
Additionally, China’s Ministry of Finance revealed on Wednesday that starting November 10, some tariffs on US agricultural products will be dropped. The department also announced a one-year suspension of 24% tariffs on select US goods, with 10% tariffs remaining intact. Since China is a key trading partner for Australia, fluctuations in the Chinese economy are likely to affect the Australian dollar.
Australia’s trade surplus widened to $3.938 billion in September, surpassing earlier estimates of $3.85 billion and a revised figure of $1.111 billion (initially $1.825 billion). Exports increased by 7.9% from the previous month, reversing the earlier 8.7% dip (revised from -7.8%). In parallel, imports climbed by 1.1% month-on-month, compared to an earlier increase of 3.3% (revised from 3.2%).
US Dollar Gains Through Technical Revisions
- The US Dollar Index (DXY), which gauges the dollar’s value against six major currencies, rebounded after a near 0.5% decline in the prior session, trading close to 99.80 as of now. Traders are eyeing Friday’s preliminary Michigan Consumer Confidence Index numbers, especially with the ongoing U.S. government shutdown limiting access to official reports like nonfarm payrolls (NFP) and unemployment figures.
- The US dollar faced challenges following a report on job cuts by Challenger, which led the Federal Reserve to consider rate cuts in its December meeting. Challenger, Gray & Christmas announced that over 153,000 jobs were slashed in October—marking the largest monthly reduction in over two decades.
- The ADP employment change in the US showed an increase of 42,000 jobs in October, a rebound from September’s revised loss of 29,000 (initially -32,000 jobs). This figure was above the anticipated 25,000. Meanwhile, the US ISM Services PMI for October increased to 52.4, up from 50.0 and above analysts’ predictions of 50.8.
- The US government shutdown continues with record-length delays and no resolution in sight. The Senate is not scheduled to vote on the House-passed reopening bill after its 14th failed attempt on Tuesday.
- St. Louis Fed President Alberto Moussallem indicated that inflation risks are leaning towards the upside. Although current tariffs are raising prices, he expects these upward pressures to decrease next year. He also mentioned that long-term inflation expectations remain stable and that even though the labor market has softened, it remains close to full employment, showcasing resilience in the U.S. economy amidst uncertainty.
- Fed Chair Jerome Powell hinted at a more cautious stance while awaiting additional data, complicated by the government shutdown. He remarked that any cuts to rates in December are not guaranteed. However, Fed Director Stephen Milan suggested that further rate adjustments might be appropriate.
- China’s services purchasing managers’ index (PMI) for October was reported at 52.6, down from 52.9 in September, aligning with market expectations. Meanwhile, the manufacturing PMI dropped to 50.6, below the September figure of 51.2 and below the market estimate of 50.9. Given the close trade ties, any changes in China’s economic landscape could influence the AUD.
- The S&P Global Australia Services PMI climbed to 52.5 in October from 52.4 in September, reflecting ongoing growth in service activities, marking a 21-month streak of expansion. However, the overall PMI slipped to 52.1 from 52.4.
- At its November policy meeting, the Reserve Bank of Australia (RBA) decided to keep the Official Cash Rate (OCR) steady at 3.6%. RBA Governor Michelle Bullock affirmed that discussions about rate cuts are currently off the table, as it’s not ideal for annual core inflation to exceed 3%. He also mentioned that the ramifications of previous rate reductions are still unfolding throughout the economy, emphasizing a cautious approach in policy outlook discussions.
AUD Drops Below 0.6500, Targeting Lower Levels
The AUD/USD exchange rate was around 0.6470 on Friday. In technical analysis, the pair is sideways within a rectangular pattern and remains beneath the nine-day exponential moving average (EMA), which suggests a reduction in short-term momentum.
It’s possible the AUD/USD pair might test the lower boundary near 0.6460, followed by a five-month low of 0.6414 recorded on August 21st. Further support is indicated at the six-month low of 0.6372.
On the upside, the initial barrier is the nine-day EMA at 0.6508, followed by the 50-day EMA at 0.6535. A rise above these thresholds could enhance both short-term and medium-term price momentum, potentially pushing the AUD/USD towards the rectangular upper limit of 0.6630. Continued upward movement could lead it closer to the 13-month high of 0.6707 established on September 17th.
