The Australian Dollar (AUD) found support on Wednesday as market participants weighed the easing likelihood of a Reserve Bank of Australia (RBA) rate cut.
Despite recovering some of its daily losses, the AUD/USD pair struggled against a resilient US Dollar (USD), reflecting ongoing market caution amid global inflation data and US employment revisions. The brokers at Solancie provide a comprehensive breakdown of this topic in this article.
Recent developments in China’s economic indicators contributed to mixed sentiment. China’s Consumer Price Index (CPI) declined 0.4% year-over-year (YoY) in August, following a flat 0% reading in July, against a consensus expectation of a 0.2% decline.
Every month, CPI inflation remained at 0%, slightly below the anticipated 0.1% rise. Given the close trade relationship between China and Australia, these figures have implications for the AUD, influencing the outlook for commodity exports and broader market sentiment.
In Australia, fundamental data provided a counterbalance to inflation concerns. The July Trade Surplus came in strong at AUD 7.31 billion, up from AUD 5.37 billion in June and surpassing expectations of AUD 4.92 billion. Q2 GDP growth advanced 0.6% quarter-over-quarter, following a 0.3% expansion in Q1, beating the 0.5% forecast.
On an annualized basis, GDP rose 1.8% YoY, up from 1.4% in Q1, above the consensus of 1.6%. July CPI inflation surged 2.8% YoY, exceeding both the prior 1.9% increase and the 2.3% forecast, highlighting persistent domestic price pressures.
Data points have slowed expectations for additional RBA rate cuts. Swaps suggest an 84% chance the RBA will maintain policy in September, while the probability of a 25-basis-point cut in November has declined from 100% to 80%.
Nevertheless, Matthew Hassan, Head of Australian Macro-Forecasting, highlighted that consumer recovery since mid-2024 has been sluggish, following a decline in Westpac Consumer Confidence to 95.4 in September from 98.5 in August. Hassan projects a 25-basis-point RBA cut in November, followed by two additional reductions in 2026, reflecting cautious optimism regarding domestic growth and inflation dynamics.
Attention has shifted to the United States, where US Nonfarm Payrolls (NFP) revisions and inflation data are influencing Federal Reserve (Fed) policy expectations. The US Bureau of Labor Statistics (BLS) indicated that total Nonfarm employment for March 2025 is likely to be revised down by 911,000 jobs, translating into roughly 76,000 fewer jobs per month.
The preliminary NFP data for August showed an increase of 22,000, falling short of the market expectation of 75,000, while the Unemployment Rate rose to 4.3%, in line with forecasts. Average Hourly Earnings increased 0.3% MoM, matching expectations.
Despite this weaker employment landscape, the USD Index (DXY) remains resilient around 97.70, supported by high inflation readings that maintain Fed hawkishness in market expectations.
CME FedWatch pricing indicates over 93% probability of a 25-basis-point Fed rate cut in September, reflecting a renewed monetary easing cycle, up from 86% a week ago. However, Federal Reserve Bank of Chicago President Austan Goolsbee cautioned that the timing of a September rate cut remains uncertain, citing persistent inflationary pressures.
In the broader Asia-Pacific trade context, China’s trade balance widened to CNY 732.7 billion in August, with exports growing 4.8% YoY and imports rising 1.7% YoY, indicating a moderate slowdown in trade momentum. These developments, coupled with Australia’s stronger-than-expected trade balance and GDP growth, have provided support for the AUD, even as global risk sentiment remains cautious.
From a technical view, the AUD/USD is trading near 0.6580, showing a retracement from the confluence area around the 0.6600 level. Daily chart analysis shows the pair remaining within an ascending channel pattern, suggesting a bullish bias.
Price action above the nine-day Exponential Moving Average (EMA) indicates that short-term momentum remains supportive.
Resistance levels include the 10-month high of 0.6625, followed by the upper channel boundary at 0.6640. A decisive break above this zone could reinforce bullish sentiment, targeting the 11-month high of 0.6687 recorded in November 2024.
On the downside, the nine-day EMA at 0.6556 aligns with the ascending channel’s lower boundary, with further declines potentially testing the 50-day EMA at 0.6512 and the three-month low of 0.6414 recorded in August.
In conclusion, the Australian Dollar has received technical and fundamental support from the easing likelihood of RBA rate cuts, robust domestic trade and GDP figures, and moderated expectations of additional monetary easing. However, the AUD/USD pair continues to navigate global economic uncertainties, including Chinese CPI trends, US employment revisions, and the prospective Fed rate cuts, which are expected to influence near-term price momentum and medium-term trends.
