The Australian Dollar (AUD) strengthened against the US Dollar (USD) on Wednesday, recovering from recent losses as the greenback retreated amid rising expectations of another interest rate cut by the US Federal Reserve (Fed). The AUD also found support after Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter signaled that inflation in the third quarter (Q3) is likely to be stronger than forecast.
RBA’s Hunter flags stronger inflation outlook
Speaking on Wednesday, RBA Assistant Governor Sarah Hunter noted that recent data have been slightly stronger than expected, with both labor market and economic conditions appearing tighter than previously assumed.
Hunter cautioned that global uncertainty remains elevated but emphasized that the RBA will adjust policy as appropriate as new information emerges. She also indicated that consumer momentum is expected to soften modestly in Q3.
Muted AUD reaction to China’s CPI decline
The AUD/USD pair showed limited reaction to weaker Chinese inflation data. China’s Consumer Price Index (CPI) fell 0.3% year-over-year (YoY) in September, compared to expectations for a 0.1% decline, following a 0.4% drop in August. Monthly CPI edged up by 0.1%, slightly below the expected 0.2% increase. Meanwhile, the Producer Price Index (PPI) fell 2.3% YoY, in line with market forecasts.
The soft inflation figures come as trade tensions between the US and China resurface. US President Donald Trump criticized Beijing’s protectionist policies, warning of further restrictions if China proceeds with new export controls on rare earth minerals and additional port fees for foreign vessels. Both nations recently announced new port fees on ocean shipping companies, a move that could have ripple effects across trade-linked economies such as Australia.
US Dollar extends losses after dovish Fed remarks
The US Dollar Index (DXY) extended its decline for the second consecutive session, trading near 98.90 as of writing. The dollar came under pressure following remarks from Fed Chair Jerome Powell, who confirmed that the central bank remains on track to deliver another 25-basis-point rate cut later this month. Powell cited slowing hiring and warned that a potential government shutdown could further obscure the economic outlook.
According to the CME FedWatch Tool, markets are now pricing in a 94% probability of an October rate cut and a 93% likelihood of another in December. The Federal Open Market Committee (FOMC) Minutes from September also signaled that most policymakers favor additional easing this year.
China’s trade data highlights mixed momentum
China’s Trade Balance narrowed to CNY 645.47 billion in September from CNY 732.7 billion previously. Exports rose 8.4% YoY, up from 4.8% in July, while imports climbed 7.5%, accelerating from 1.7% previously. In USD terms, the trade surplus stood at $90.45 billion, missing expectations for $98.96 billion. The mixed trade data further underscored uneven global demand conditions, which could indirectly weigh on the AUD given Australia’s close trade links with China.
RBA remains cautious amid persistent inflation
The RBA’s September meeting minutes, released earlier this week, showed that policymakers agreed monetary policy remains “a little restrictive” but difficult to gauge. The board reiterated that risks to the economy persist, particularly amid weak consumption and slow wage growth. RBA Governor Michele Bullock recently noted that services inflation remains sticky, though headline inflation continues to move in the right direction.
Meanwhile, Australia’s Consumer Inflation Expectations rose to 4.8% in October, up from 4.7% previously — the highest since June — reflecting ongoing price pressures. Markets widely expect the RBA to hold the cash rate at 3.6% in its next meeting.
Australia explores strategic minerals partnership with US
According to a report from The Age, Australian officials have begun discussions with miners to contribute to a proposed A$1.2 billion “critical minerals strategic reserve.” The initiative aims to stabilize prices and strengthen cooperation with the United States on rare earth and critical mineral projects.
AUD/USD technical outlook: Pair eyes resistance near 0.6530
The AUD/USD pair traded around 0.6500 on Wednesday, showing modest gains despite maintaining a bearish bias on the daily chart. The pair remains within a descending channel, with the 14-day Relative Strength Index (RSI) still below the 50 mark, indicating prevailing downside pressure.
On the downside, a break below 0.6450 — the lower boundary of the descending channel — could trigger a test of the four-month low at 0.6414, followed by the five-month low at 0.6372. Conversely, resistance is seen at the 9-day Exponential Moving Average (EMA) near 0.6532 and the 50-day EMA around 0.6553. A breakout above these levels could lift the pair toward the upper boundary of the channel near 0.6590, paving the way for a move toward the 12-month high of 0.6707 recorded on September 17.
