Australian Dollar maintains strength after disappointing economic data from China.

• The Australian Dollar is bolstered by a potential halt in RBA rate cuts.
• Retail sales in China were projected to grow by 3.4% year-on-year in August, following increases of 3.8% and 3.7% in July.
• The US labor market hints at an impending decision by the Federal Reserve to implement annual cuts on Thursday.

The Australian Dollar (AUD) rose slightly against the US Dollar (USD) on Monday, making up for losses from the previous day. The AUD/USD maintains its position even with disappointing economic figures from China, which is a significant trading partner for Australia.

The National Bureau of Statistics (NBS) reported on Monday that China’s retail sales were anticipated to rise by 3.8% and 3.7% in July, while August year-on-year growth was pegged at 3.4%. Meanwhile, industrial production grew by 5.2% year-on-year, lower than the expected 5.8% and previous 5.7% estimates.

According to the NBS, economic conditions were generally stable in August, though there is room for growth in domestic demand, which could lead to price rebounds. The NBS also noted a challenging external environment for some businesses.

In Madrid, US Treasury Secretary Scott Bescent and trade representative Jamieson Greer engaged in discussions with their Chinese counterpart, focusing on trade and economic matters. Traders are closely observing the ongoing US-China discussions as they enter their second day.

The AUD has received support from lowered expectations for further Reserve Bank of Australia (RBA) interest rate reductions. Current swaps indicate an 86% likelihood of a stable policy in September, bolstered by Australia’s robust trade surplus in July, solid GDP growth for Q2, and rising inflationary pressures.

Furthermore, consumer inflation expectations in Australia have climbed in September, hinting at stronger domestic demand, which raises concerns about possible new inflationary issues. RBA Governor Michele Bullock commented on signs of growth in the private sector.

Australian Dollar rises as market sentiment shifts Fed rate cut possibilities

• The US Dollar Index (DXY), which measures the US dollar’s value against major currencies, hovers around 97.60 as of writing. The dollar may face challenges in influencing the Federal Reserve’s decision amid a softening labor market ahead of Thursday’s cuts.
• Market participants are also awaiting confirmation on Stephen Milan as federal governor, with a full Senate vote scheduled for Monday evening.
• The Federal Reserve is widely expected to cut rates by 25 basis points at its September gathering, although a 50-point cut isn’t out of the question. The market continues to anticipate easing until 2026, which, I guess, suggests a low recession risk.
• Both Morgan Stanley and Deutsche Bank foresee three interest rate cuts this year, as recent data indicates easing inflationary trends. They predict a 25-point cut at Fed meetings in September, October, and December.
• Following a lackluster non-farm payroll report, expectations for multiple Fed rate cuts have surged since October 2021, especially after US weekly unemployment claims reached a peak not seen since then, alongside higher-than-expected consumer inflation figures.
• The US Consumer Price Index (CPI) rose by 2.9% year-on-year in August, surpassing the 2.7% registered in July, while monthly CPI inflation increased to 0.4%. Core CPI, excluding volatile food and energy prices, was up 3.1% in August, which aligned with forecasts.
• Unemployment claims in the US rose to 263,000, the highest level since 2021, against estimates of 235,000, while prior claims were revised from 237,000.
• Preliminary estimates of current employment statistics (CES) by the U.S. Bureau of Labor Statistics suggest an expected 911,000 total non-farm jobs by March 2025, which is about 76,000 fewer jobs per month than earlier predictions. A final revision will be published in February 2026.

The Australian Dollar aims for an 11-month high near 0.6700

The AUD/USD is trading around 0.6660 on Monday. Daily chart analysis reveals the pair moving upward within an ascending channel, reflecting a bullish market attitude. Additionally, the pair is positioned above the nine-day exponential moving average (EMA), indicating solid short-term momentum.

Notably, the AUD/USD is nearing an 11-month peak of 0.6687 recorded in November 2024, with an upward channel boundary close to 0.6700.

Initial support is identified at the nine-day EMA of 0.6607, followed by a lower limit of 0.6570 for the ascending channel. A drop below this channel could weaken short-term momentum and test the 50-day EMA at 0.6529.

AUD/USD Daily Charts