The Australian Dollar (AUD) extended its decline against the US Dollar (USD) on Friday, trading around 0.6480 during Asian hours. The pair remains under pressure for the second straight session, weighed down by intensifying US-China trade tensions and weaker-than-expected Australian labor market data.
The risk-sensitive Aussie Dollar is particularly vulnerable to developments in China, its largest trading partner. Tensions flared again this week after US Trade Representative Jamieson Greer and Treasury Secretary Scott Bessent condemned Beijing’s decision to tighten restrictions on rare earth exports, labeling the move as “economic coercion” and “a global supply chain power grab.”
Bessent warned that “if China wants to be an unreliable partner to the world, then the world will have to decouple.” Still, both US officials left the door open for negotiation, noting uncertainty over whether China will actually implement the announced export controls, according to the BBC.
Adding to the downside pressure, Australia’s September labor market report underscored growing signs of economic softness. Data from the Australian Bureau of Statistics (ABS) showed that employment rose by 14.9K in September, missing expectations of a 17K increase. Meanwhile, the unemployment rate climbed to 4.5%, the highest level in nearly four years, compared to the previous 4.3%.
Following the data, markets raised the probability of a Reserve Bank of Australia (RBA) rate cut in November to 85%, up from 50% earlier in the week.
RBA officials maintained a cautious tone in recent remarks. Assistant Governor Christopher Kent said financial conditions have eased after recent rate reductions and that the cash rate now sits within an “uncertain neutral range.”
Assistant Governor Sarah Hunter echoed this, acknowledging stronger-than-expected economic data but warning that global risks remain elevated and inflation may exceed prior forecasts in the third quarter. The minutes from the RBA’s September meeting also emphasized that monetary policy remains “a little restrictive” and future decisions will depend heavily on incoming data.
Meanwhile, the US Dollar’s broader trajectory remains constrained by growing expectations of further Federal Reserve rate cuts and the prolonged government shutdown. Fed Chair Jerome Powell reiterated this week that another quarter-point reduction is likely at the upcoming policy meeting, even as the shutdown hampers the central bank’s access to key data. According to the CME FedWatch Tool, markets are pricing in a 97% chance of a rate cut in October and an 83% probability of another in December.
Technical outlook
From a technical standpoint, AUD/USD continues to trade within a descending channel on the daily chart, signaling a prevailing bearish trend. The 14-day Relative Strength Index (RSI) remains below the 50 mark, reinforcing negative momentum.
Immediate support is seen near 0.6440, the lower boundary of the channel, followed by the August 21 low at 0.6414. A break below this level could expose the five-month trough near 0.6372. On the upside, initial resistance lies at the 9-day Exponential Moving Average (EMA) around 0.6515, followed by the 50-day EMA at 0.6548. A sustained break above these levels could shift short-term sentiment and open the way toward the channel’s upper boundary near 0.6580.
