The AUD/USD rates hit close to 0.6620, even though Australia’s Trade Balance for August was disappointing. The Reserve Bank of Australia (RBA) kept interest rates steady at 3.6%. Meanwhile, a softening job market in the US is boosting expectations for the Federal Reserve to ease interest rates. The Australian Bureau of Statistics reported that the Trade Surplus for August was just 1,825 million, well below the expected 6,500 million and down from the previous 7,310 million. Weak Trade Balance data usually affects the Australian Dollar (AUD) negatively, as Australia relies heavily on its export market for economic growth.

Monetary Policy Expectations

Future movements in the Australian Dollar will depend on how the Reserve Bank of Australia plans its monetary policy. The US Dollar is under pressure due to signs of weakness in the job market, particularly after a report showed a loss of 32,000 jobs in the private sector for September. The situation is made worse by a government shutdown after a temporary funding bill failed in the Senate. This adds uncertainty about the future of the AUD, as traders watch for news from both the Reserve Bank of Australia and the Federal Reserve. The AUD/USD is climbing towards 0.6620, seemingly unaffected by the poor Australian trade balance data. The report revealed a surplus of only 1.8 billion, a big drop from the expected 6.5 billion. This indicates that traders are currently more focused on the weakening US dollar than on Australian data. The US dollar faces pressure from cracks in the job market and political turmoil. The ADP employment report showed a surprising loss of 32,000 private sector jobs, raising bets that the Federal Reserve may need to cut interest rates soon. Additionally, the US government shutdown began this week. Reflecting on the 35-day shutdown in 2018-2019, we see how such events can lead to lasting uncertainty that negatively impacts the dollar.

Commodity-Linked Currency Resilience

On the Australian front, it’s important not to be overly pessimistic just because of one bad trade number. The RBA has kept interest rates at 3.6% and Governor Bullock warned that inflation is proving more stubborn than expected. Recent CPI data from late September shows inflation remains high at 4.2%, making it unlikely the RBA will consider rate cuts. Additionally, the AUD is a commodity-linked currency. Prices for iron ore, Australia’s top export, have stayed strong, remaining above $100 per tonne due to steady demand. This suggests that the underlying value of exports is still solid, and the weak trade figure for August might be a temporary setback. For traders, this creates a volatile environment in the coming weeks, especially with the important US Non-Farm Payrolls report due out tomorrow. The conflicting pressures from a dovish Fed and a cautious RBA mean any surprises in US job data could lead to significant swings in the AUD/USD pair. Expect high implied volatility on short-term options as traders gear up for potential big moves. Create your live VT Markets account and start trading now.

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