The Australian Dollar (AUD) fell against the US Dollar (USD) due to rising trade tensions between the US and China. This marked its second consecutive day of declines. The job data for September has increased the chance of a rate cut to 85%, up from 50% earlier in the week. Meanwhile, the USD also weakened because of the ongoing government shutdown and speculation about future interest rate cuts. Tensions increased as US officials criticized China’s plans to limit rare earth exports. Concerns about the Australian economy were further highlighted by September’s employment report, which showed an Employment Change of 14.9K, below the expected 17K. The Unemployment Rate climbed to 4.5%, exceeding the predicted 4.3% and reaching its highest level in nearly four years.

The US Dollar Index and Financial Conditions

The US Dollar Index has dropped over four sessions, trading near 98.20. This decline is influenced by the government shutdown and anticipated rate cuts. The US Federal Reserve (Fed) is expected to lower interest rates this month. Additionally, China’s inflation fell by 0.3% year-over-year in September. Despite recent rate cuts, Australia’s financial conditions are less restrictive. The AUD’s value, especially against the Swiss Franc, reflects these trends. The AUD/USD is currently trading around 0.6480 within a descending channel, indicating a bearish trend. Support may be found at 0.6440, with resistance at key Exponential Moving Averages (EMA). The Reserve Bank of Australia’s (RBA) interest rate choices greatly influence the Australian Dollar. As a country rich in resources, the AUD is impacted by the price of Iron Ore and the economic health of its largest trading partner, China. Australia’s inflation, growth rate, and Trade Balance further affect currency value. A positive Trade Balance usually strengthens the AUD, while a negative one weakens it.

Impact of Domestic and Global Factors

As of October 17, 2025, the Australian dollar is clearly trending downward. The blend of escalating US-China trade tensions and strong expectations for an RBA rate cut presents significant challenges. Traders should be cautious when considering long positions in the AUD over the coming weeks. Domestic data is worrisome, with unemployment rising to a four-year high of 4.5% in September. This development pushed the probability of a November rate cut to 85%, a notable increase suggesting weaker economic fundamentals. A similar situation occurred in 2019 when weak employment reports led to a series of RBA rate cuts, indicating that the central bank may soon take action. The situation in China, Australia’s largest trading partner, adds another risk factor. Recent data shows a decline in consumer prices, and the potential restriction on rare earth exports could hinder global trade and appetite for risk, which typically dampens the AUD. This is evident in the iron ore price, which recently fell below $100 per tonne for the first time since early 2024, impacting Australia’s export revenue. While the USD faces challenges with the government shutdown and expected Fed rate cuts, the weaknesses in the AUD appear more pronounced. The latest US jobs report indicated only 85,000 jobs added, justifying the Fed’s cautious stance. However, the AUD struggles due to both domestic and international pressures, making the AUD/USD pair a study in which currency is weakening faster. For derivative traders, this market environment suggests positioning for further declines in the AUD/USD. Buying put options with strike prices below the 0.6440 support level could be a smart move to take advantage of a potential drop while managing risk. The descending channel pattern and weak momentum indicators reinforce this bearish outlook. It’s worth noting that the AUD is currently weakest against safe-haven currencies like the Swiss Franc. In times of global uncertainty, investors typically flock to safety, and the US-China tensions create a strong incentive for this. Therefore, traders might consider looking for short positions in AUD/CHF or AUD/JPY pairs for more direct downside exposure. Create your live VT Markets account and start trading now.

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