AUD/USD now retargets 0.6600 and beyond

AUD/USD rapidly leaves behind Friday’s slight decline and advances markedly well past the 0.6500 barrier on Monday. The Aussie’s uptick comes on the back of a decent pullback in the US Dollar as investors remain hopeful of a US-China trade deal.

AUD/USD Technical Overview

Further gains in AUD/USD remain on the cards as long as it trades above its critical 200-day SMA near 0.6430.

If the recovery gathers serious traction, the spot could be looking at a potential challenge of the October top of 0.6629 (October 1), prior to the 2025 ceiling of 0.6707 (September 17). Further up comes the 2024 peak at 0.6942 (September 30), ahead of the 0.7000 milestone.

Sellers, on the other hand, face immediate contention at the 200-day SMA at 0.6435, ahead of the August base at 0.6414 (August 21). A drop below the June trough of 0.6372 (June 23) would expose the 0.6000 threshold before the 2025 valley of 0.5913 (April 9).

Momentum indicators now show some improvement: the Relative Strength Index (RSI) accelerates the rebound past 53, indicating incipient bullish impulse, while the Average Directional Index (ADX) beyond 20 indicates a trend that is gradually picking up strength.

Waiting for a catalyst

For now, AUD/USD is still boxed in between 0.6400 and 0.6700, looking for something to break the range. A stronger run of Chinese data, a dovish surprise from the Fed, or a more cautious tone from the RBA could finally give the pair a clearer sense of direction.

Fundamental Overview

The Australian Dollar (AUD) started the week on the front foot, recovering from Friday’s dip and pushing AUD/USD to a three-week high around 0.6560.

The bounce came as the US Dollar (USD) lost some steam, helped along by signs of easing US–China trade tensions, growing bets on a Federal Reserve (Fed) rate cut later this week, and renewed chatter about a possible US government shutdown.

Local data still holding up

Australia’s economy continues to show resilience, maybe not roaring ahead, but definitely holding steady. The preliminary PMI readings for October were mixed: manufacturing slipped slightly to 49.7 (from 51.4), while services picked up to 53.1 (from 52.4).

In addition, Retail Sales rose 1.2% in June, and the August trade surplus only nudged lower to A$1.825 billion. Business investment grew through Q2, and GDP expanded 0.6% on the quarter and 1.8% over the last twelve months, not spectacular, but solid enough.

The labour market, however, looks like it’s starting to cool. The Unemployment Rate ticked up to 4.5% in September from 4.3%, with the Employment Change rising just 14.9K. It’s not alarming, but it does hint that hiring momentum is losing a bit of steam.

RBA keeping its guard up

The Reserve Bank of Australia (RBA) remains laser-focused on inflation and jobs. The August Monthly CPI Indicator (Weighted Mean) rose to 3.0% from 2.8%, while Q2 CPI gained 0.7% inter quarter and 2.1% from a year earlier. Meanwhile, the Melbourne Institute’s survey showed consumer inflation expectations jumping to 4.8% in October.

In Q2, the RBA’s preferred gauge, the trimmed mean CPI, ran at 2.7% annualised, comfortably within the 2–3% target band.

At its September meeting, the RBA kept the Official Cash Rate (OCR) at 3.60%, as everyone expected. But policymakers seemed a touch more cautious, suggesting that the disinflation trend might be stalling after the last CPI surprise — and that Q3 inflation could come in a bit hotter than hoped.

Governor Michele Bullock has been clear that decisions will stay data-driven — “meeting by meeting”, as she put it. She hasn’t ruled out rate cuts but has made it equally clear that the board needs more evidence that inflation and demand pressures are truly easing before moving.

Speaking last Friday, Bullock said the upcoming inflation print could heavily influence next week’s policy call. If core inflation rises 0.9% in Q3, higher than the RBA’s forecast of about 0.6%, she said it would be a “material miss” that the board couldn’t ignore when deciding whether to cut.

She also played down the rise in unemployment, saying the monthly figures can jump around and that the latest move wasn’t far off RBA expectations. In short, she seemed to be signalling that while softer labour data may not bother the bank too much, a stronger inflation reading could make rate cuts harder to justify.

Markets are currently pricing in roughly 16 basis points of easing by year-end and see around a 62% chance of a quarter-point cut at the 4 November meeting.

China still calling the shots

Australia’s outlook still leans heavily on how China’s recovery plays out. Chinese GDP grew 4.8% year-on-year in Q3, better than expected, while retail sales rose 3.0% in the year to September. But the PMI numbers were more mixed — manufacturing stayed below 50 at 49.8, and services hovered right on the threshold.

China’s trade surplus narrowed from $103.33 billion to $90.45 billion in September, and consumer prices stayed in deflationary territory, down 0.3% from a year earlier.

Earlier this month, the People’s Bank of China (PBoC) left its Loan Prime Rates unchanged at 3.00% (one-year) and 3.50% (five-year), exactly as markets expected.