The Australian dollar (AUD) extended its recovery against the US dollar (USD) on Thursday, trading near 0.6590 during the Asian session. The AUD/USD pair maintained its upward momentum following the much-anticipated meeting between US President Donald Trump and China’s President Xi Jinping in South Korea. Given Australia’s strong trade relationship with China, any shift in Beijing’s economic policy or trade stance can directly influence the Australian currency.
President Trump announced a reduction in tariffs on Chinese goods from 57% to 47%, adding that the long-standing rare earth dispute has been resolved, with no further export restrictions planned. He also confirmed that China will immediately resume soybean imports and strengthen efforts to combat the fentanyl crisis. However, Trump noted that some key issues remain unresolved.
RBA rate outlook supports the Australian dollar
The AUD gained additional support after Australia’s third-quarter inflation and August CPI figures came in hotter than expected on Wednesday. The stronger data dampened expectations of near-term rate cuts by the Reserve Bank of Australia (RBA). RBA Governor Michele Bullock remarked that the labor market remains relatively tight, despite a recent uptick in the unemployment rate.
The RBA’s trimmed mean CPI rose 1.0% quarter-on-quarter and 3.0% year-on-year in Q3, beating forecasts of 0.8% and 2.7%, respectively. Meanwhile, August’s monthly CPI jumped 3.5% year-on-year, compared to July’s 3.0% rise and above market expectations of 3.1%.
US dollar weakens amid Fed policy uncertainty
The US Dollar Index (DXY), which measures the greenback against six major peers, slipped to around 98.90 after recording gains in the previous session. The Federal Reserve (Fed) delivered a widely expected 25-basis-point rate cut on Wednesday—its second consecutive reduction—amid mixed signals on inflation and growth.
Although some Fed officials noted moderate inflationary pressures, they did not rule out another cut later this year. The Fed also reiterated plans to continue tapering its Quantitative Easing (QE) program by reducing holdings of mortgage-backed securities and reallocating them into long-term Treasuries by December 1.
Fed Chair Jerome Powell said the overall outlook for employment and inflation has remained largely unchanged since the September meeting. He added that the ongoing government shutdown is likely to weigh on short-term economic activity, but the impact should reverse once operations resume. Powell emphasized that a December rate cut is “far from certain,” signaling a cautious and data-dependent approach.
Meanwhile, the latest US CPI report showed annual inflation at 3.0% in September, slightly below expectations of 3.1% and easing from 2.9% in August. Monthly CPI rose 0.3%, while core CPI increased 0.2% month-on-month, both below consensus forecasts.
AUD/USD tests 0.6600 amid improving sentiment
Technically, AUD/USD trades near 0.6590, showing a neutral bias on the daily chart as it consolidates within a rectangle pattern. The pair remains above the nine-day Exponential Moving Average (EMA), signaling short-term bullish momentum.
The immediate resistance sits at the psychological level of 0.6600, followed by the upper boundary of the rectangle near 0.6630. A sustained break above this zone could trigger a bullish move toward the 12-month high of 0.6707, last seen on September 17.
On the downside, key support levels are located at the nine-day EMA (0.6549) and the 50-day EMA (0.6546). A decisive move below these levels would weaken the near-term outlook and expose the lower boundary of the rectangle around 0.6450, with further downside potential toward the four-month low of 0.6414.
