AUD/USD: Door open to a challenge of the 200-day SMA

AUD/USD remains on the defensive ahead of the opening bell in Asia, hovering just below the 0.6500 hurdle after bottoming out near 0.6440, or multi-week lows, earlier in the day. The resurgence of US-China trade tensions weighed on the Aussie, leaving the door open to extra losses in the very near term.

AUD/USD Technical Overview

AUD/USD risks a probable descent to its critical 200-day SMA near 0.6420.

That said, the continuation of the current bearish trend should face the next key contention zone at the 200-day SMA, closely followed by the August floor at 0.6414 (August 21) and then the June base at 0.6372 (June 23).

In contrast, occasional bullish attempts should initially retarget the October ceiling at 0.6629 (October 1), ahead of the 2025 top at 0.6707 (September 17). North from here comes the 2024 high at 0.6942 (September 30), prior to the 0.7000 threshold.

Momentum indicators lean bearish: the Relative Strength Index (RSI) hovers around 39, suggesting that the selling momentum still dominates, while the Average Directional Index (ADX) just over 16 indicates that the current trend lacks muscle.

Looking for a spark

All told, AUD/USD remains locked in a broad 0.6400–0.6700 range. It’ll likely take a clear catalyst: stronger Chinese data, a dovish turn from the Fed, or a softer stance from the RBA to break the pair decisively out of this holding pattern.

Fundamental Overview

The Australian Dollar (AUD) couldn’t find much traction on Tuesday, slipping further as the US Dollar (USD) kept up its recovery. Fresh jitters over US–China trade relations also soured sentiment toward the Aussie.

By the end of the day, AUD/USD had extended its retreat toward the 0.6440 area, its weakest level in eight weeks, adding weight to the broader monthly pullback.

Domestic data still holding up

Despite the risk-off tone in markets, Australia’s underlying data continues to show a bit of resilience. The final September manufacturing and services PMIs both eased slightly but stayed above 50, signalling continued expansion.

Retail Sales rose 1.2% in June, the August trade surplus only narrowed modestly to A$1.825 billion, and business investment kept growing through Q2. GDP was up 0.6% in the April-June quarter and 1.8% YoY, not spectacular, but steady enough.

The labour market, though, has lost a little momentum. The unemployment rate held at 4.2% in August, but total employment fell by 5.4K. It’s hardly a red flag yet, but it does hint that growth is beginning to cool around the edges.

RBA stays watchful on inflation

Inflation remains front and centre for the Reserve Bank of Australia (RBA). The August Monthly CPI Indicator (Weighted Mean) ticked up to 3.0% from 2.8%, while Q2 CPI rose 0.7% QoQ and 2.1% YoY. The Melbourne Institute’s October Consumer Inflation Expectations also nudged higher to 4.8%.

That was enough to keep the RBA cautious at its 30 September meeting. The cash rate stayed on hold at 3.60%, as widely expected, but officials backed away from earlier hints of possible easing. Policymakers noted that disinflation might be slowing after the CPI surprise, with Q3 inflation likely to come in hotter than the 2.6% forecast.

Governor Michele Bullock has stuck to a consistent message: decisions will remain data-dependent and assessed meeting by meeting. Rate cuts aren’t ruled out, but the RBA wants firmer evidence that supply–demand imbalances are easing.

For now, trimmed mean CPI at 2.7% YoY in Q2 sits comfortably within the 2–3% target band. Markets are pricing in around 15 bps of easing by year-end and roughly 28 bps by late 2026.

China still in the driver’s seat

Australia’s outlook remains closely tied to China’s uneven recovery. Q2 GDP expanded 5.2% YoY, but August retail sales disappointed at 3.4%. September’s PMIs painted a mixed picture: manufacturing remained in contraction at 49.8, while services just held the 50.0 line.

China’s September trade surplus also narrowed to $90.45 billion (from $103.33 billion), and inflation looks set to stay near deflationary territory in September after August’s CPI slipped to 0.4% YoY.

Meanwhile, the People’s Bank of China (PBoC) left its Loan Prime Rates (LPR) unchanged in September: the one-year at 3.00% and the five-year at 3.50%, broadly in line with consensus.

Market positioning still thin

Speculative interest in the Aussie remains subdued. With Commodity Futures Trading Commission (CFTC) data delayed due to the US government shutdown, the latest available figures to 23 September still showed a clear tilt toward net shorts among non-commercial traders, suggesting much of the bearish sentiment is already baked in.