The Australian Dollar’s Struggles Amid Trade Talks
- Traders exercise caution ahead of US-China trade discussions.
- Expectations for a three-month extension of the tariff ceasefire between the US and China.
- Awaiting Australia’s second quarter CPI data, which may influence the next decision from the RBA.
On Monday, the Australian Dollar (AUD) dipped against the US Dollar (USD), continuing a downward trend for the third consecutive session. Interestingly, after a recent trade agreement announcement between the US and the European Union, the AUD/USD pair has found some footing.
Market participants are keenly observing the upcoming meeting between US Treasury Secretary Scott Bescent and China’s Deputy Prime Minister Lifeng. Sources cited by the South China Morning Post suggest that both nations will likely agree to extend their tariff ceasefire for another three months.
The Financial Times indicated that the US has paused some export controls on key technologies to China in a bid to smooth trade relations. It’s worth mentioning that fluctuations in the Chinese economy can significantly influence the AUD, given the close trading ties between Australia and China.
Australia’s second quarter CPI data is set to be released on Wednesday; this data will likely play a crucial role in the Reserve Bank of Australia’s (RBA) interest rate decisions. Last week, RBA Governor Michele Brock reaffirmed the bank’s commitment to maintaining low inflation and stable economic conditions, while also acknowledging ongoing global economic uncertainties.
The Outlook for the Australian Dollar
- The US Dollar Index (DXY), which measures the dollar’s value against six major currencies, has remained stable after a two-day profit streak, trading around 97.60. Market sentiment is slightly improving following the US-EU trade deal.
- The trade agreement reached between the US and EU sets a 15% tariff on many European goods and went into effect on August 1, resolving a confrontation that lasted about a month, according to Bloomberg.
- In the employment sector, initial US unemployment claims dropped to 217,000 from 227,000, marking the longest weekly decline since 2022 and showcasing labor market resilience.
- The S&P Global US Composite Purchasing Managers Index (PMI) increased to 54.6 in July, up from 52.9 in June, reflecting the fastest growth in business activity in seven months. Conversely, while the Services PMI rose to 55.2, the Manufacturing PMI fell to 49.5, indicating contraction.
- Treasury Secretary Scott Bescent mentioned that a new Federal Reserve Chair will likely be announced in December or January but emphasized there’s no rush in selecting his successor.
- Federal government officials suggest the central bank shouldn’t lower interest rates soon, as the effects of tariffs are starting to surface in consumer prices. They argue that a restrictive monetary policy is essential to manage inflation expectations.
- San Francisco Fed President Mary Daly described hopes for two interest rate cuts this year as a “rational” perspective, advising against delay. Additionally, Christopher Waller of the Federal Reserve thinks rate targets should be reduced in July.
- Minutes from the most recent RBA meetings indicated that while further interest rate cuts are anticipated, many board members felt it prudent to await confirmation of a slowdown in inflation before proceeding. Some expressed concern that three reductions in four meetings weren’t adequately cautious or gradual.
AUD/USD Technical Insights
Currently, the AUD/USD pair trades near 0.6570. Technical analysis suggests a generally bullish outlook as the pair remains within a rising channel pattern. The 14-day relative strength index (RSI) is above the 50 mark, indicating strong momentum. The pair is also above the nine-day exponential moving average (EMA), hinting at solid short-term price performance.
On the upside, the pair could test an initial resistance at 0.6625, which is an eight-month high. Should it break above this level, it may target the upper ceiling of 0.6680 within the rising channel.
Conversely, key support can be found at the nine-day EMA around 0.6560. A drop below this point would signal weaker short-term momentum and may test the 50-day EMA at 0.6508, potentially pushing the pair towards the lower boundary of the channel around 0.6490.
AUD/USD: Daily Charts
Current Australian Dollar Prices
The following shows the performance of the Australian Dollar (AUD) against major currencies today, highlighting that it has been particularly weak against the Swiss franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.12% | -0.01% | 0.06% | -0.08% | 0.17% | 0.11% | -0.16% | |
| EUR | -0.12% | -0.16% | -0.03% | -0.21% | 0.05% | -0.02% | -0.29% | |
| GBP | 0.01% | 0.16% | -0.08% | -0.05% | 0.21% | 0.14% | -0.13% | |
| JPY | -0.06% | 0.03% | 0.08% | -0.12% | 0.08% | 0.04% | -0.07% | |
| CAD | 0.08% | 0.21% | 0.05% | 0.12% | 0.23% | 0.19% | -0.08% | |
| AUD | -0.17% | -0.05% | -0.21% | -0.08% | -0.23% | -0.07% | -0.34% | |
| NZD | -0.11% | 0.02% | -0.14% | -0.04% | -0.19% | 0.07% | -0.27% | |
| CHF | 0.16% | 0.29% | 0.13% | 0.07% | 0.08% | 0.34% | 0.27% |
This table indicates the change in value of the Australian dollar (AUD) in comparison to various major currencies. The base currency is listed in the first column and the estimated currencies across the top row. For instance, selecting AUD from the left column and moving along to USD shows the value change.
