The Australian Dollar (AUD) has maintained a stable trajectory amid robust economic signals from both Australia and China, while the US Dollar (USD) faced downward pressure following weaker-than-expected labor market data in August.
The latest developments indicate that the AUD is benefiting from a combination of solid domestic growth, favorable trade balances, rising inflation, and shifting global monetary expectations, reinforcing its position against the USD. The BluSkyMint team, through broker Kate Mclaren, provides readers with a comprehensive overview of this issue.
Last week’s release of Australia’s July Trade Balance and Q2 Gross Domestic Product (GDP) data contributed to a reduction in bets on further Reserve Bank of Australia (RBA) rate cuts. The July Trade Balance recorded a surplus of AUD 7,310 million, up from AUD 5,366 million in June, exceeding the market consensus of AUD 4,920 million.
The widening trade surplus reflects strong export demand, particularly for commodities such as iron ore, coal, and natural gas, which are essential in the global supply chain and highly dependent on trade flows with China, Australia’s largest trading partner.
The Q2 GDP growth further supported the AUD, showing a 0.6% quarter-over-quarter increase, surpassing the 0.5% forecast. On an annual basis, Q2 GDP grew by 1.8%, higher than Q1’s 1.4% and above market expectations of 1.6%, reflecting ongoing economic resilience despite global uncertainty.
These figures, combined with a stronger-than-expected Trade Balance, have helped maintain the AUD’s strength, as market participants recalibrate monetary policy expectations. Swaps markets now indicate nearly a 90% probability that the RBA will hold rates steady in September, while the likelihood of a 25-basis-point cut in November has eased to 80%, down from 100% a week earlier.
Meanwhile, China’s Trade Balance expanded to CNY 732.7 billion in August, up from CNY 705.18 billion in July. Exports rose 4.8% year-on-year (YoY) in August, slightly below July’s 8%, while imports increased 1.7% YoY, down from 4.8% previously.
Despite slower growth in exports and imports, the overall widening trade surplus underscores sustained global demand for Chinese goods and has positive spillover effects on Australia’s commodity exports, particularly metals and energy products.
The Caixin Services Purchasing Managers’ Index (PMI) unexpectedly rose to 53.0 in August from 52.6, while the Caixin Manufacturing PMI improved to 50.5, signaling economic stability in China. Given the strong trade and economic linkages between China and Australia, these figures are a significant support factor for the AUD.
On the other side, the US Dollar softened following disappointing labor market releases. The US Nonfarm Payrolls (NFP) added only 22,000 jobs in August, well below the 75,000 forecast, while the unemployment rate increased to 4.3%, slightly above the previous 4.2%. Average Hourly Earnings grew 0.3% month-over-month, matching expectations.
Additionally, ADP employment data revealed a 54,000 job gain, falling short of the 65,000 forecast, highlighting signs of a slowing US labor market. Collectively, these reports intensified expectations for Federal Reserve (Fed) rate cuts, with the CME FedWatch tool showing a 92% probability of a 25-basis-point reduction in September and rising speculation of a 50-basis-point cut in upcoming meetings.
From a technical perspective, the AUD/USD pair is trading around 0.6560 and remains within an ascending channel pattern, reflecting continued bullish momentum. The nine-day Exponential Moving Average (EMA) at 0.6534 provides immediate support, while the 50-day EMA at 0.6507 offers medium-term protection.
On the upside, the pair may target the seven-week high of 0.6588, the upper boundary of the channel at 0.6610, and potentially the 10-month high of 0.6625 recorded in late July. Should the AUD/USD break below key support levels, the pair could test the three-month low of 0.6414, signaling a shift in market sentiment.
Australia’s Monthly Consumer Price Index (CPI) data also provides insight into the inflationary environment. The CPI rose 2.8% YoY in July, above the prior 1.9% and consensus of 2.3%, indicating persistent inflationary pressure. Higher inflation reduces the likelihood of an immediate RBA rate cut, continuing to underpin the AUD’s value.
Conclusion
The Australian Dollar remains resilient due to robust domestic fundamentals, a widening trade surplus, supportive inflation metrics, and positive external developments in China. Weakness in the USD, driven by soft US labor market data and growing expectations of Fed easing, further strengthens the AUD/USD pair.
Technical indicators suggest a bullish outlook, with clear support and resistance levels guiding traders and investors. With global monetary policy divergence and heightened focus on RBA and Fed decisions, the Australian Dollar is well-positioned to maintain its advantage against the USD in the near term.
