AUD/USD faces further consolidation

AUD/USD picks up renewed upside impulse and surpasses the 0.6500 barrier ahead of the opening bell in Asia. The Aussie’s daily recovery comes despite further gains in the Greenback and easing tensions on the trade front. Moving forward, the advanced gauges of business activity will be the salient event in Oz on Friday.

AUD/USD Technical Overview

For the time being, the consolidative atmosphere around AUD/USD remains unchanged.

In fact, although the crucial 200-day SMA at 0.6430 seems to be supporting the downside, immediate up-barriers are the preliminary 100-day and 55-day SMAs at 0.6533 and 0.6546, respectively.

Bulls must overcome the latter before attempting to reach the October high of 0.6629 (October 1) or the 2025 ceiling of 0.6707 (September 17). Further up, the 2024 top at 0.6942 (September 30) precedes the 0.7000 yardstick.

In the opposite direction, the October base at 0.6440 (October 14) provides immediate support, followed by the crucial 200-day SMA at 0.6432 and the August trough at 0.6414 (August 21). A plunge below the June low of 0.6372 (June 23) would reveal the critical 0.6000 mark and the 2025 bottom of 0.5913 (April 9).

Momentum indicators continue to point southwards: the Relative Strength Index (RSI) accelerates the bounce and reaches 46, indicating incipient bullish pressure, while the Average Directional Index (ADX) above around 21 indicates a gradually strengthening trend.

Looking for a spark

For the time being, the AUD/USD is trapped in the wide 0.6400-0.6700 region, awaiting a clear trigger. A better run of Chinese data, a dovish surprise from the Fed, or a softer tone from the RBA might finally provide the pair with a clear sense of direction.

Fundamental Overview

The Australian Dollar (AUD) regained balance on Thursday, reversing two consecutive days of losses and breaking above the 0.6500 barrier once again, hitting two-day highs.

The rebound occurred despite extra gains in the US Dollar (USD), all in the backdrop of easing US-China trade tensions, revived discussion of prospective Federal Reserve (Fed) rate cuts, and ongoing US government shutdown fears.

Local data still shows some strength

Australia's latest data show that the economy is holding up quite well, even if the pace has slowed somewhat. The final manufacturing and services PMIs for September fell slightly but remained over 50, indicating continued growth. Traders will now look for new hints in Friday's flash October PMI figures.

In addition, Retail sales increased 1.2% in June, while the August trade surplus fell only marginally to A$1.825 billion. Business investment increased in Q2, and GDP expanded 0.6% in the quarter and 1.8% from a year earlier: not spectacular, but consistent.

However, the employment market seems to be softening. The Unemployment Rate increased to 4.5% in September from 4.3%, although the Employment Change was just +14.9K. It is hardly reason for alarm, but it does indicate that hiring momentum is slowing.

RBA still treads warily

The Reserve Bank of Australia (RBA) is firmly focused on inflation and the labour market. The August Monthly CPI Indicator (Weighted Mean) increased to 3.0% from 2.8%, while Q2 CPI grew 0.7% vs. the previous quarter and 2.1% YoY. Meanwhile, the Melbourne Institute's consumer inflation expectations rose to 4.8% in October.

In Q2, the trimmed mean CPI, a key indicator carefully watched by the RBA, was 2.7% on an annualised basis, well within the target range of 2-3%.

At its September meeting, the RBA maintained the Official Cash Rate (OCR) at 3.60%, as anticipated, but downplayed prior indications of probable softening. Policymakers said that disinflation may be losing momentum after the latest CPI surprise, meaning that Q3 inflation might be somewhat higher than expected.

Governor Michele Bullock has reiterated a data-driven approach, stating choices would be made "meeting by meeting". While rate cuts are not off the table, she has said that the RBA needs further evidence that inflation and demand pressures are reducing.

Bullock said last week that stronger consumer expenditure and higher inflation had led the Bank to reconsider the timing of any further reduction. With rates only modestly restrictive and financial conditions already loosening, the RBA seems to be in no rush to act.

Markets are presently pricing in around 23 basis points of easing by year-end, with a 68% likelihood of a quarter-point reduction at the next meeting on November 4.

China remains in control

Australia's economic outlook is largely influenced by China's patchy recovery. Chinese GDP climbed 4.8% year on year in Q3, above expectations, while retail sales increased 3.0% in the year to September. However, the PMI statistics were mixed, with manufacturing continuing to decline at 49.8 and services staying around the 50.0 mark.

China's trade surplus fell from $103.33 billion to $90.45 billion in September, but consumer prices remained deflationary, down 0.3% from September 2024.

Last Monday, the People's Bank of China (PBoC) maintained its Loan Prime Rates at 3.00% for one year and 3.50% for five years, as predicted.