Australian Dollar Price Forecast: Extra choppiness on the table
- AUD/USD reversed Tuesday’s decline, briefly retesting the area above 0.6500.
- The US Dollar gave away its initial gains amid easing trade tensions.
- Investors’ attention shifts to the advanced PMIs and the speech by RBA Bullock.
The Australian Dollar (AUD) regained some composure on Wednesday, partially recovering ground lost on Tuesday and lifting AUD/USD above 0.6500 the figure.
The bounce came as the US Dollar (USD) eased slightly, helped by calmer US–China trade sentiment, renewed talk of potential Federal Reserve (Fed) rate cuts, and lingering US government shutdown concerns.
Local data still showing some strength
Australia’s latest numbers suggest the economy is holding up reasonably well, even if the momentum has started to cool a touch. The final manufacturing and services PMIs for September slipped a little but stayed above the 50 line, still pointing to expansion. Traders will now be watching Friday’s flash October PMIs readings for fresh clues.
Retail Sales rose 1.2% in June, and the August trade surplus narrowed only slightly to A$1.825 billion. Business investment picked up through Q2, and GDP grew 0.6% on the quarter and 1.8% year-on-year: not spectacular, but steady.
The labour market, however, is looking a bit softer. The Unemployment Rate climbed to 4.5% in September from 4.3%, while Employment Change came in at just +14.9K. It’s not cause for panic, but it does hint that hiring momentum is slowing.
RBA still treading carefully
The Reserve Bank of Australia (RBA) remains firmly focused on inflation and the jobs market. The August Monthly CPI Indicator (Weighted Mean) edged up to 3.0% from 2.8%, while Q2 CPI rose 0.7% QoQ and 2.1% on a yearly basis. Meanwhile, the Melbourne Institute’s Consumer Inflation Expectations ticked higher to 4.8% in October.
The trimmed mean CPI, a core measure the RBA closely watches, sits comfortably within the 2–3% target band at an annualised 2.7% in Q2.
At its September meeting, the RBA held the Official Cash Rate (OCR) at 3.60%, as widely expected, but toned down earlier hints of possible easing. Policymakers suggested that disinflation may be losing steam after the recent CPI surprise, implying that Q3 inflation could come in a touch hotter than forecast.
Governor Michele Bullock has doubled down on a data-dependent approach, saying decisions will be made “meeting by meeting.” While rate cuts aren’t off the table, she’s emphasised that the RBA wants clearer evidence that inflation and demand pressures are easing.
In comments last week, Bullock noted that firmer consumer spending and 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 looks in no hurry to move.
Markets are currently pricing in roughly 24 basis points of easing by year-end, with about a 71% chance of a 25-basis-point cut at the next meeting on 4 November.
China still calling the shots
Australia’s economic outlook remains heavily linked to China’s uneven recovery. Chinese GDP grew 4.8% year-on-year in Q3, beating forecasts, while Retail Sales were up 3.0% in the year to September. But the PMI data were mixed, with manufacturing still contracting at 49.8 and services hovering around the 50.0 line.
Trade figures showed China’s surplus narrowing to $90.45 billion in September from $103.33 billion, while consumer prices remained in deflation, down 0.3% compared with September 2024.
As expected, the People’s Bank of China (PBoC) kept its Loan Prime Rates unchanged on Monday: the one-year rate at 3.00% and the five-year at 3.50%.
Technical picture
AUD/USD remains mired in a consolidative theme, while the downside appears so far underpinned by the critical 200-day SMA around 0.6430.
Bullish attempts should meet initial resistance at the transitory 100-day and 55-day SMAs at 0.6533 and 0.6547, respectively. The surpass of this region could put the October top at 0.6629 (October 1) back on the radar, ahead of the 2025 high at 0.6707 (September 17). Extra gains from here should retarget the 2024 top at 0.6942 (September 30), prior to the 0.7000 threshold.
On the flip side, the loss of the October floor at 0.6440 (October 14), should shift the attention to the key 200-day SMA at 0.6431, ahead of the August low at 0.6414 (August 21). South from here emerges the June valley at 0.6372 (June 23), seconded by the key 0.6000 milestone and the 2025 bottom at 0.5913 (April 9).
Momentum indicators lean bearish: the Relative Strength Index (RSI) hovers around 44, indicating that further weakness appears in place. Additionally, the Average Directional Index (ADX) above 21 signals a trend that is slowly picking up pace.
AUD/USD daily chart
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Looking for a spark
For now, AUD/USD is still stuck in a broad 0.6400–0.6700 range, waiting for a clear catalyst. A stronger run of Chinese data, a dovish surprise from the Fed, or a softer tone from the RBA could be what finally gives the pair a fresh sense of direction.
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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Author
Pablo Piovano
FXStreet
Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.
