The Australian Dollar is bouncing back as hope grows for a US-China trade deal, even though it’s facing challenges from possible rate cuts by the Reserve Bank of Australia (RBA). The AUD/USD pair is having a tough time due to cautious trading, with all eyes on upcoming US inflation data and a period of data silence. The AUD is getting a boost from President Trump’s positive remarks about striking deals with China during his talks with Xi Jinping in South Korea. However, the AUD/USD pair is also dealing with expectations of a 25-basis-point rate cut from the RBA, following employment data that revealed a rise in the unemployment rate, increasing the odds of rate cuts to 70%. Traders are keeping an eye on key economic reports, including PMI readings and Q3 CPI figures.

Trade Agreements Offer Support

The AUD is supported by a new trade deal between the US and Australia, which includes an $8.5 billion agreement on critical minerals. The US Dollar Index is climbing near 99.00, thanks to optimism about deals between Trump and Xi Jinping. However, the ongoing US government shutdown, now in its fourth week, is delaying important data releases, causing uncertainty in the market. A poll suggests that the Fed may cut interest rates by 25 basis points by the end of October, with strong market expectations for more cuts in December. Meanwhile, the People’s Bank of China has decided to keep its loan prime rates steady and maintain stable GDP growth, providing a stable environment. The AUD/USD faces technical resistance around 0.6500, and further gains will need to break through bearish momentum. The Australian Dollar is showing various percentage changes against major currencies, being particularly robust against the Japanese Yen. Key influences on the AUD include RBA interest rates, global market sentiment, and economic conditions in China, which is Australia’s largest trading partner. The price of Iron Ore and the country’s trade balance are also crucial to the currency’s value. With the Federal Reserve almost certain to cut rates by 25 basis points next week, we’re now focused on forward guidance. The recent rise in US jobless claims to 225,000 and the ISM Manufacturing PMI staying below 50 for the fourth consecutive month reinforce the view that the Fed needs to act. This widespread expectation of easing from the US central bank is holding back the strength of the US Dollar.

Australian Economic Outlook

In Australia, the case for a near-term RBA rate cut is gaining momentum. The recent rise in the unemployment rate was confirmed by yesterday’s Q3 CPI data, which came in at 2.8%, below the RBA’s target range and lower than forecasts. The likelihood of a November rate cut now exceeds 85%, which could put more pressure on the Australian Dollar. China’s slowing GDP growth, now at 4.8% annually, is affecting sentiment about Australia. This slowdown is evident in key commodity prices, as iron ore futures have dropped to around $105 per tonne, down from earlier highs this year. This impacts the AUD, as China is Australia’s biggest trading partner and the largest buyer of its exports. Despite these economic challenges, some positive news on the trade front is offering brief support for the AUD. There is ongoing optimism about the US-China discussions and a concrete US-Australia critical minerals deal that is currently lending support to the currency. This makes it harder for the AUD to take a sharp fall until we get clear results from these talks. For traders dealing in AUD/USD derivatives, the current bearish trend suggests it may be wise to sell into any strength in the coming weeks. The area around the 0.6500 psychological level, which aligns with the nine-day moving average, is a key resistance point to consider for short positions. Our downside targets remain near the 0.6400 support level. Given the mixed signals between negative economic data and positive trade sentiment, we anticipate increased volatility. Options traders might want to explore strategies that profit from price volatility, like buying straddles ahead of next week’s Australian CPI data or the Fed’s interest rate decisions. This approach enables us to capitalize on significant market moves in either direction. Unlike the market anxiety seen during previous US government shutdowns, our current focus is on monetary policy. Delays in data releases are a lesser concern compared to the interest rate paths set by the Fed and RBA. Therefore, political noise from Washington should be less of a priority. Since the AUD is showing strength against the Japanese Yen, we may consider a different trading strategy if risk appetite improves. If the US-China discussions deliver a positive surprise, taking a long position on AUD/JPY could yield better returns than trading AUD/USD. This is because the yen usually weakens during a “risk-on” environment, further boosting the Australian Dollar. Create your live VT Markets account and start trading now.

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