The Australian dollar (AUD) experienced a drop against the US dollar (USD) on Thursday, reversing some of its recent gains from the day before. Movement in the AUD/USD pair has stagnated, as the Australian dollar faced challenges after the release of employment data.
According to the Australian Bureau of Statistics (ABS), employment saw a rise of 14,000 in September, which was below the market’s expectations of 17,000. The prior figure was revised to -11.8K from -5.4K. At the same time, the unemployment rate climbed to 4.5%, marking the highest rate in approximately four years, which was above both market predictions and the previous rate of 4.3%.
This underwhelming jobs report has led to increased selling pressure on the Australian dollar, which raises the likelihood of a cash rate cut from 3.65% to 76% in November—up from just below 50% previously.
Despite this, the Australian dollar received some backing from cautious remarks made by Sarah Hunter, assistant governor of the Reserve Bank of Australia (RBA), on Wednesday. She noted that recent data had been somewhat stronger than anticipated and expressed concerns about inflation being potentially higher than expected for the third quarter. Hunter pointed out that global economic uncertainty is still quite significant, implying that the Board would adjust policies as new information comes to light. She also mentioned an expectation of slightly reduced consumer momentum in Q3.
US dollar weakens amid US-China trade concerns
- The US Dollar Index (DXY), which measures the dollar’s strength against six major currencies, has seen a decline over the past three sessions and is currently trading around 98.50. This weakness in the dollar is attributed to traders’ heightened caution in light of escalating trade tensions between the U.S. and China.
- On Wednesday, U.S. President Donald Trump remarked that the U.S. is engaged in a trade war with China. Meanwhile, Treasury Secretary Scott Bessent has suggested a long-term suspension of high tariffs on Chinese goods as a means to resolve disputes over critical minerals.
- The dollar’s situation worsened after Federal Reserve Chair Jerome Powell indicated on Tuesday that the Fed is aiming to reduce interest rates by another quarter of a percentage point this month, as the government shutdown sharply dims the economic outlook. Powell emphasized a slowdown in hiring, suggesting it might continue.
- Market forecasts indicate a nearly 98% probability that the Fed will lower rates in October, alongside a 93% chance of an additional cut in December, according to the CME FedWatch tool.
- In September, China’s consumer price index (CPI) dipped 0.3% year-on-year, which was steeper than the market’s expected decline of 0.1%. This followed a 0.4% decrease in August. The monthly inflation rate had a slight increase to 0.1%, falling short of the expected 0.2%. Meanwhile, the producer price index (PPI) saw a 2.3% year-on-year decline, compared to an anticipated 2.9% drop.
- China’s trade balance in September amounted to 645.47 billion yuan, down from 732.7 billion yuan previously. While exports rose by 8.4% year-on-year in September, this was less than the 4.8% growth in July. Imports also increased by 7.5% year-on-year, contrasting with a previous record of just 1.7%. In terms of U.S. dollars, the trade surplus stood at $90.45 billion, narrower than the September estimate of $98.96 billion and down from $102.33 billion earlier.
- The minutes from the RBA’s September monetary policy meeting, released on Monday, reflected that board members felt the current policy remains somewhat restrictive but acknowledged the difficulty in making decisions. The RBA noted ongoing economic risks, with weak consumption and slowing employment and wage growth. Monthly CPI for housing and services suggests that third-quarter inflation might be stronger than initially expected. RBA members reaffirmed that future policy actions will be taken with caution based on the available data.
Australian dollar stabilizes near 0.6500 amidst bearish sentiment
The AUD/USD pair is trading around the 0.6500 mark on Thursday. Technical indicators show that the bearish trend persists as the pair remains encased in a descending channel pattern. Additionally, the 14-day Relative Strength Index (RSI) lingers below the 50 level, reinforcing this bearish outlook.
On the downside, the AUD/USD pair might target the lower end of this descending channel near 0.6440. A breakdown beneath this level could strengthen the bearish sentiment and potentially test the four-month low of 0.6414, reached on August 21, followed by the five-month low of 0.6372.
Initially, the AUD/USD pair may encounter resistance at the 9-day exponential moving average (EMA) of 0.6527, followed by the 50-day EMA at 0.6552. If it breaks through these barriers, it could enhance short-term and medium-term price momentum, aiming for the upper boundary of the descending channel around 0.6590. Should it surpass this, it might trigger a bullish trend and develop momentum toward the 12-month high of 0.6707 recorded on September 17th.
