- AUD/USD accelerated its weekly leg lower and targets the 0.6400 region.
- The US Dollar picked up renewed upside impulse ahead of Powell’s speech.
- Preliminary S&P Global Manufacturing and Services PMIs came in firm in August.
The Australian Dollar (AUD) stays under pressure on Thursday, with AUD/USD slipping toward two-month lows near the 0.6400 support. It was the pair’s fourth straight daily decline, this time amid a solid performance of the US Dollar (USD).
In the meantime, traders weighed lingering geopolitical tensions in combination with persistent unease surrounding the Federal Reserve’s (Fed) independence, all ahead of the speech by Chair Jerome Powell at the Jackson Hole Symposium on Friday.
Inflation: Cooling, but slowly
Australia’s inflation story continues to ease, though the pace is hardly dramatic. Q2 Consumer Price Index (CPI) came in at 0.7% QoQ and 2.1% YoY, while June’s Monthly CPI Indicator edged down to 1.9%. Progress, yes, but more of a gentle step down than a sharp retreat.
Elsewhere, the economy looks sturdier. Advanced August PMIs showed manufacturing extending its recovery above the 50 line to 52.9, services improving to 55.1, and retail sales rising 1.2% in June. Trade also helped, with the surplus jumping to A$5.365 billion from A$1.604 billion in May.
The labour market remains firm. July’s unemployment dipped to 4.2%, with 24.5K jobs added and participation steady at 67%.
RBA: Cautious hands on the wheel
The Reserve Bank of Australia (RBA) trimmed the Official Cash Rate (OCR) by 25 bps earlier this month to 3.60%, broadly in line with expectations, and lowered its end-2026 forecast to 2.9% from 3.2%. Growth forecasts for 2025 were also shaved to 1.7% from 2.1%, citing global headwinds. Unemployment and core inflation projections for late 2025, however, stayed put at 4.3% and 2.6%.
Governor Michele Bullock resisted pressure for a bigger half-point cut, stressing that policy is “data-dependent, not data-point dependent.” Markets now see another 25 basis points of easing by the November 5 meeting, effectively another quarter-point move.
China: The decisive variable
China’s outlook remains patchy. Q2 GDP printed at 5.2% YoY and industrial output grew 7%, but retail sales again undershot the 5% line. Earlier in the week, the People’s Bank of China (PBoC) left its one- and five-year Loan Prime Rates (LPRs) unchanged at 3.00% and 3.50%, as expected.
Other data was less encouraging: the official manufacturing PMI slid to 49.3, non-manufacturing slipped to 50.1, and Caixin readings told a similar story. July trade data showed the surplus narrowing to $98.24 billion, with exports up 7.2% and imports up 4.1%. Inflation barely moved, underlining persistent deflationary pressures.
Positioning: Bears hold the upper hand
Speculators remain firmly against the Aussie. Commodity Futures Trading Commission (CFTC) figures through August 12 showed net shorts swelling to nearly 88K contracts, the heaviest since April 2024, while open interest climbed to 171.3K, marking multi-week highs.
Technicals: Trapped in a range
Resistance sits at the 2025 ceiling of 0.6625 (July 24), ahead of the November 2024 high at 0.6687 (November 7). Above there, the psychological 0.7000 is the big target for bulls.
Support is layered at the August low of 0.6414 (August 21), prior to the 200-day Simple Moving Average (SMA) at 0.6384, and the June floor at 0.6372 (June 23).
Momentum remains sluggish: the Relative Strength Index (RSI) has slipped to around 38, while the Average Directional Index (ADX) is near 19 points to a trend which seems to be strengthening.
AUD/USD daily chart
Outlook: Stuck for now
For the time being, AUD/USD looks boxed in between 0.6400 and 0.6600. Breaking out of that range may require a stronger catalyst: firmer Chinese data, a shift in Fed policy, or a new steer from the RBA.
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
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