The Australian dollar (AUD) declined against the US dollar (USD) on Friday, marking its second consecutive day of losses. The AUD/USD pair is likely to continue this downward trend amidst rising trade tensions between the US and China. Given Australia’s strong trade ties with China, any shifts in the Chinese economy can significantly influence the Australian dollar.
U.S. Trade Representative Jamison Greer and Treasury Secretary Scott Bessent voiced their concerns regarding China’s plan to restrict rare earth exports, labeling it as “economic coercion” and a “power grab in global supply chains.” Bessent warned, “If China opts to be an unreliable partner, the world may need to cut ties.” Nonetheless, the BBC reported that both officials left space for potential negotiations and seemed unsure about whether China would adhere to the export restrictions that were recently announced.
The Australian dollar faced obstacles after the jobs report for September, which sparked speculation about a potential cash rate cut from 3.65% for November — moving from 50% to an 85% chance. According to the Australian Bureau of Statistics (ABS), employment increased by 14,090 in September, which was below the expected 17,000. The previous figure was revised from -5.4K to -11.8K. Meanwhile, the unemployment rate climbed to 4.5%, the highest it has been in about four years, surpassing both market expectations and the prior rate of 4.3%.
US dollar declines amid government shutdown and expectations of Fed rate cuts
- The US Dollar Index (DXY), which tracks the dollar against six key currencies, has been in decline for four sessions, currently trading around 98.20. The dollar weakened as the US government shutdown continues, creating anticipation of an interest rate cut.
- The federal government shutdown is set to persist into the following week after the Senate once again failed to pass a Republican bill aimed at extending funding, marking the 10th failure on Thursday, now on the 16th day of the standoff.
- Federal Reserve President Christopher Waller expressed support for additional interest rate cuts during this month’s policy meeting. New Fed President Stephen Milan also reiterated the need for a more aggressive approach to rate cuts through 2025, differing from many of his colleagues.
- Federal Reserve Chairman Jerome Powell announced on Tuesday that the central bank plans to reduce interest rates by another quarter point later this month, despite the government shutdown clouding the economic outlook. He pointed out the sluggish pace of hiring, cautioning that it may slow even more.
- Currently, markets are estimating nearly a 97% probability for a Fed rate cut in October, with an 83% likelihood of another cut in December, according to the CME FedWatch tool.
- China’s consumer price index (CPI) dropped by 0.3% year-on-year in September, while market expectations had predicted a smaller decline of 0.1%. Following a 0.4% decrease in August, the monthly inflation rate increased to 0.1%, below the forecast of 0.2%. Additionally, China’s producer price index (PPI) decreased by 2.3% year-on-year, following the anticipated 2.9% decline.
- RBA Assistant Governor (Financial Markets) Christopher Kent mentioned at the CFA Institute Australian Investment Conference that financial conditions are easing due to recent rate cuts. He noted that the central bank is reassessing its outlook based on forthcoming data and risks, and that the cash rate is currently in a broadly uncertain neutral range.
- Reserve Bank of Australia (RBA) assistant governor Sarah Hunter remarked that recent data was somewhat stronger than anticipated, suggesting inflation might be higher than previously expected in the third quarter. She highlighted ongoing high uncertainty about the global economic outlook and stated that policy adjustments would be made as new information arises. She anticipates a slight weakening in consumer momentum during the third quarter.
- Minutes from the RBA’s September monetary policy meeting showed that while board members agreed the policy is still somewhat restrictive, making decisions has been challenging. They acknowledged ongoing economic risks, with consumption being weak and both employment and wage growth slowing. Monthly CPI data for housing and services hints at stronger than expected third-quarter inflation. The Board stressed that future decisions will be made cautiously based on available data.
The Australian dollar holds below $0.6500 amid prevailing bearish sentiment.
On Friday, AUD/USD was trading around 0.6480. Daily technical analysis indicates a continued bearish trend as the pair operates within a descending channel. Moreover, the 14-day Relative Strength Index (RSI) remains below the 50 mark, reinforcing this bearish stance.
Looking ahead, the AUD/USD pair may find initial support near the lower end of this channel around 0.6440, followed by a four-month low of 0.6414 hit on August 21st. Additional support is noted at a five-month low of 0.6372.
On the upside, the AUD/USD pair could encounter significant resistance at the 9-day exponential moving average (EMA) of 0.6515, followed by the 50-day EMA at 0.6548. A breakthrough above these levels might enhance short-term and medium-term price momentum, testing the upper boundary of the descending channel around 0.6580.
AUD/USD: daily chart
Australian dollar price today
Today’s percentage change for the Australian Dollar (AUD) against major currencies is shown in the table below. The Australian dollar was weakest against the Swiss franc.
The heat map illustrates percentage shifts between major currencies, with the base currency selected from the left column and the quote currency from the top row. For instance, selecting Australian Dollars from the left and moving along to US Dollars will show the percentage change in the corresponding box.
Frequently asked questions about the US-China trade war
In general terms, a trade war occurs when two or more countries engage in extreme protectionism, which leads to the creation of trade barriers like tariffs. These tariffs prompt countermeasures that increase import costs, ultimately raising living expenses.
The economic tensions between the United States and China began in early 2018 when President Donald Trump imposed trade barriers, citing unfair practices and intellectual property theft. In retaliation, China instituted tariffs on various U.S. goods. The friction continued until the two nations signed the Phase 1 Trade Agreement in January 2020, which aimed at structural reforms in China’s trade system. However, the COVID-19 pandemic shifted the focus. President Joe Biden, upon taking office, maintained those tariffs and introduced additional taxes.
With Donald Trump potentially returning to the White House as the 47th president, tensions between the two nations could rise again. During the 2024 election campaign, Trump proposed imposing 60% tariffs on China if he regains office, which he did on January 20, 2025. This return may reignite the trade war from its previous state, with retaliatory measures impacting the global economy and potentially leading to reduced spending and inflation.
