AUD/USD risks a drop to 0.6440

AUD/USD trades on a negative foot on Tuesday, reversing two daily advances in a row and returning to the sub-0.6500 zone on the back of the continuation of the strong sentiment around the US Dollar. Easing tensions on the US-China trade front, in the meantime, failed to underpin the recent rebound in the Aussie.

AUD/USD Technical Overview

So far, extra gains in AUD/USD appear limited by the provisional 100-day and 55-day SMAs at 0.6533 and 0.6547, respectively.

Once this area of resistance is cleared, spot could attempt a move toward the October ceiling at 0.6629 (October 1), seconded by the 2025 peak at 0.6707 (September 17). Further up comes the 2024 high at 0.6942 (September 30), just ahead of the 0.7000 yardstick.

In case sellers regain the upper hand, the pair should meet initial support at the October base at 0.6440 (October 14), which appears propped up by the vicinity of the critical 200-day SMA at 0.6430, closely followed by the August trough at 0.6414 (August 21). Extra declines from here could pave the way for a test of the June low at 0.6372 (June 23), ahead of the key 0.6000 round level and the 2025 bottom at 0.5913 (April 9).

Momentum indicators now favour further weakness: the Relative Strength Index (RSI) navigates near the 42 level, suggesting that further losses could be waiting ahead. In addition, the Average Directional Index (ADX) past 20 suggests a trend that might be gaining strength.

Waiting for a catalyst

For now, AUD/USD remains trapped in a wide 0.6400–0.6700 range and needs a clear trigger to break out. A stronger run of Chinese data, a dovish surprise from the Fed, or a softer tone from the RBA could be the spark that finally gives the pair some fresh direction.

Fundamental Overview

The Australian Dollar (AUD) lost its footing on Tuesday, snapping a two-day winning streak as AUD/USD slipped back below the 0.6500 mark. Sellers stepped in as the US Dollar (USD) found fresh strength, supported by easing US–China trade worries despite growing speculation that the Federal Reserve (Fed) might lean more dovish in the months ahead, remaining well in place.

Local data still holding up

Australia’s latest data continue to paint a picture of resilience, even if the shine is fading a bit. September’s final manufacturing and services PMIs dipped slightly but stayed above 50, still signalling growth.

Retail Sales were up 1.2% in June, while the August trade surplus narrowed only modestly to A$1.825 billion. Business investment grew through Q2, and GDP expanded 0.6% on the quarter and 1.8% YoY: solid, if unspectacular, results.

The labour market, though, is showing a few cracks. The Unemployment Rate rose to 4.5% in September from 4.3%, and Employment Change disappointed at just +14.9K. It’s not an alarm bell yet, but it does hint that hiring momentum is cooling.

RBA staying cautious on inflation and jobs

The Reserve Bank of Australia (RBA) remains laser-focused on inflation and employment. The August Monthly CPI Indicator (Weighted Mean) edged up to 3.0% from 2.8%, while Q2 CPI climbed 0.7% inter-quarter and 2.1% from a year eaarlier. The Melbourne Institute’s Consumer Inflation Expectations also ticked higher, reaching 4.8% in October.

Additionally, the trimmed mean CPI is comfortably within the RBA’s 2–3% target range, sitting at an annualised 2.7% in Q2.

At its September 30 meeting, the RBA kept the Official Cash Rate (OCR) at 3.60%, as expected, but softened its earlier hints at possible easing. Policymakers noted that disinflation might be losing traction after the latest CPI surprise, suggesting Q3 inflation could print a little hotter than anticipated.

Governor Michele Bullock has stuck to a data-dependent approach, saying decisions will continue to be made “meeting by meeting.” While rate cuts aren’t off the table, she’s made it clear the RBA wants stronger evidence that inflation and demand pressures are easing.

Speaking again last week, Bullock signalled that firmer consumer spending and slightly stickier inflation have prompted the Bank to reassess the timing of any future cuts. With rates only mildly restrictive and financial conditions already easing, the RBA appears in no rush to move.

Markets are currently pricing in around 25 basis points of easing by year-end, with roughly 73% odds of a 25bp cut at the next meeting on November 4.

China still in the driver’s seat

Australia’s outlook remains closely tied to China’s patchy recovery. Chinese GDP expanded 4.8% YoY in Q3, stronger than expected, while Retail Sales surpassed forecasts at 3.0% in the year to September. However, PMIs painted a mixed picture in September, with manufacturing still contracting at 49.8 and services barely holding steady at 50.0.

Further data saw China’s trade surplus narrow to $90.45 billion in September from $103.33 billion, while consumer prices stayed in deflation, down 0.3% vs. September 2024.

Meanwhile, the People’s Bank of China (PBoC) left its Loan Prime Rates (LPR) unchanged on Monday, keeping the one-year rate at 3.00% and the five-year at 3.50%, as expected.