The Australian Dollar (AUD) edged higher against the US Dollar (USD) on Monday, rebounding from last week’s decline. The AUD/USD pair held steady despite weak economic data out of China, one of Australia’s largest trading partners.
Data from China’s National Bureau of Statistics (NBS) showed Retail Sales rising 3.4% year-over-year (YoY) in August, below both the 3.8% forecast and July’s 3.7% increase. Industrial Production grew 5.2% YoY, also missing expectations of 5.8% and slowing from the previous 5.7%.
RBA policy outlook supports AUD
The AUD is drawing support from reduced bets on additional Reserve Bank of Australia (RBA) rate cuts. Swaps are now pricing in an 86% chance of the central bank holding rates steady in September, underpinned by Australia’s robust July trade surplus, resilient Q2 GDP, and hotter-than-expected July inflation.
Australia’s September Consumer Inflation Expectations also ticked higher, pointing to firmer domestic demand and raising concerns about renewed inflationary pressures. RBA Governor Michele Bullock highlighted that the private sector is showing “a little bit more growth,” calling it a positive sign for the broader economy.
Separately, US Treasury Secretary Scott Bessent, Trade Representative Jamieson Greer, and China’s Vice Premier He Lifeng held high-level economic talks in Madrid, with markets closely watching developments as negotiations enter their second day.
Australian Dollar advances as Fed rate cut bets strengthen
The US Dollar Index (DXY), which tracks the greenback against six major currencies, hovered near 97.60 in Monday trading. The USD faces pressure as mounting signs of labor market weakness fuel expectations that the US Federal Reserve (Fed) will deliver its first rate cut of the year on Thursday.
Markets are also monitoring whether Stephen Miran will be confirmed as a Fed governor ahead of the meeting, with a Senate vote scheduled for Monday evening, according to Reuters.
Consensus points to a 25-basis-point rate cut in September, though a larger 50-basis-point reduction remains a possibility. Market pricing also reflects expectations for continued easing into 2026 as the Fed seeks to cushion the economy from a potential downturn.
Morgan Stanley and Deutsche Bank now project three Fed rate cuts this year, anticipating 25-basis-point moves at each of the remaining meetings in September, October, and December. Their revised forecasts follow data showing softening labor market conditions, despite consumer inflation running above expectations.
US Consumer Price Index (CPI) inflation rose 2.9% YoY in August, up from 2.7% in July and in line with estimates. On a monthly basis, CPI accelerated to 0.4% from 0.2%. Core CPI, which excludes food and energy, climbed 3.1% YoY, matching forecasts.
Labor market data continued to disappoint, with Initial Jobless Claims jumping to 263K, the highest since October 2021, against expectations of 235K. Meanwhile, the Bureau of Labor Statistics (BLS) estimated its benchmark revision could lower Nonfarm Payrolls for March 2025 by 911,000, signaling the job market may be weaker than previously assessed.
Australian Dollar targets 11-month highs near 0.6700
The AUD/USD pair traded around 0.6660 on Monday, maintaining its bullish trajectory within an ascending channel on the daily chart. The pair also remains above the nine-day Exponential Moving Average (EMA), signaling firm short-term momentum.
On the upside, the next target sits at November 2024’s 11-month high of 0.6687, with scope to test the channel’s upper boundary near 0.6700.
Initial support is seen at the nine-day EMA of 0.6607, followed by the lower boundary of the channel around 0.6570. A breakdown below this level could expose the 50-day EMA at 0.6529, weakening the near-term bullish outlook.
