The Australian Dollar (AUD) recovered intraday losses on Wednesday, with AUD/USD stabilizing as the US Dollar (USD) held firm. Despite the US Nonfarm Payrolls Benchmark Revision pointing to a likely downward adjustment of 911,000 jobs by March 2025, Fed rate cut expectations continue to underpin the Aussie.
China inflation data weighs on AUD
China’s Consumer Price Index (CPI) fell 0.4% year-on-year in August after a 0.0% print in July, missing consensus for a 0.2% decline. Monthly CPI printed 0.0% versus 0.4% previously and a 0.1% forecast. As Australia’s largest trading partner, softer Chinese inflation dampens demand prospects for AUD.
RBA outlook limits downside risk
Domestic data has softened expectations of further RBA easing. A stronger-than-expected July trade surplus, Q2 GDP growth of 0.6% QoQ and hotter July inflation at 2.8% YoY have reduced near-term cut bets. Swaps now price roughly an 84% chance of unchanged policy in September, while the probability of a 25 bps move in November has eased from full pricing to about 80%.
Fed policy and USD dynamics
The US Dollar Index (DXY) trades near 97.70 as markets await US inflation prints. The CME FedWatch tool shows around a 93% probability of a 25 bps Fed cut in September. Still, some Fed officials remain cautious: Chicago Fed President Austan Goolsbee flagged uncertainty on the timing given sticky inflation. August’s payrolls disappointed, with a 22,000 rise versus 75,000 expected, reinforcing a softer labor backdrop.
Technical outlook: key levels in focus
AUD/USD trades near 0.6580 and remains inside an ascending channel, supporting a bullish bias. Immediate resistance sits at the 10-month high of 0.6625 and the channel upper boundary near 0.6640, with a breakout potentially targeting the 11-month high at 0.6687. On the downside, support is seen at the nine-day EMA around 0.6556 and the channel lower boundary near 0.6550; a breakdown would expose the 50-day EMA at 0.6512 and the August low at 0.6414.
