- AUD/USD intensified its weekly decline and flirted with monthly lows near 0.6420.
- The US Dollar faced renewed downside pressure ahead of the FOMC Minutes.
- Flash S&P Global Manufacturing and Services PMIs are due next in Oz.
The Australian Dollar (AUD) extended its weekly losses, pushing AUD/USD back toward three-week lows near 0.6420, an area coincident with the August floor. The third straight daily pullback came despite the US Dollar (USD) retreated slightly, as traders weighed geopolitical risks and another attack by President Trump to the Federal Reserve (Fed), this time directed at Governor Lisa Cook.
Inflation: Easing, but hardly racing
Australia’s inflation trend is cooling, though not at a dramatic pace. Q2 CPI landed at 0.7% QoQ and 2.1% YoY, while June’s Monthly CPI Indicator eased to 1.9%. It’s progress, but more of a gentle decline than a sharp drop.
The broader economy is holding up better. July PMIs showed manufacturing climbing back above the 50 threshold at 51.6, services rising to 53.8, and retail sales gaining 1.2% in June. Trade added momentum too, with the surplus swelling to A$5.365 billion from A$1.604 billion in May.
Jobs remain firm after the labour market saw July’s unemployment edge lower to 4.2%, with 24.5K jobs added and participation steady at 67%.
RBA: Playing it cautious
The Reserve Bank of Australia (RBA) trimmed the Official Cash Rate (OCR) by 25 basis points earlier this month to 3.60%, as expected, while revising its end-2026 forecast lower to 2.9% from 3.2%. Growth projections for 2025 were also cut to 1.7% from 2.1%, citing global headwinds. But unemployment and core inflation forecasts for late 2025 were left unchanged at 4.3% and 2.6%.
Governor Michele Bullock resisted calls for a larger half-point cut, stressing policy remains “data-dependent, not data-point dependent.” For now, markets are pricing in around 25 basis points of easing by the November 5 meeting, in line with another quarter-point move.
China: The swing factor
China continues to deliver a mixed picture for Australia. Q2 GDP came in at 5.2% YoY and industrial output grew 7%, but retail sales fell short of the 5% mark. The PBoC held its one- and five-year Loan Prime Rates (LPRs) steady at 3.00% and 3.50% earlier on Wednesday, in line with prior forecasts.
Other signals were weaker: the official manufacturing PMI dropped to 49.3, non-manufacturing slipped to 50.1, and Caixin surveys echoed the slowdown. July trade data showed the surplus narrowing to $98.24 billion, with exports up 7.2% and imports up 4.1%. Inflation barely budged, underscoring ongoing deflationary pressure.
Positioning: Bears remain in control
Speculators remain heavily against the Aussie. Commodity Futures Trading Comission (CFTC) data through August 12 showed net shorts swelling to nearly 88K contracts, the largest since April 2024, while open interest climbed to 171.3K, marking multi-week highs.
Charts: Support softens
Upside hurdles sit at the 2025 ceiling of 0.6625 (July 24), followed by the November 2024 peak at 0.6687 (November 7). Above there, the psychological 0.7000 looms.
On the downside, first support is the August valley at 0.6418 (August 1), followed by the 200-day SMA at 0.6385 and the June floor at 0.6372 (June 23).
Momentum indicators look tilted to the negative side: The Relative Strength Index (RSI) has slipped back to 39 and the Average Directional Index (ADX) above 17 signals a still weak, drifting market.
AUD/USD daily chart
Range-bound for now
For the moment, AUD/USD looks trapped between 0.6400 and 0.6600. Breaking out of that range may need a stronger catalyst, be it firmer Chinese data, a shift from the Fed, or a fresh steer from the RBA.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
