Aussie dollar finds support as US-China tensions cool
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Daily Currency Update
The Australian dollar (AUD) is showing signs of stability at the start of the new week, recovering some of last week’s losses against the US dollar (USD). On Monday, the AUD/USD currency pair climbed back above the key US$0.6500 level after briefly dipping to its lowest point since August 27, around US$0.6472, during Friday’s trading session.At the time of writing, the Aussie is trading sideways near US$0.6517, representing a daily gain of roughly 0.65%. While this isn’t a dramatic rally, the move offers some relief to traders and investors who have seen the Australian currency come under steady pressure in recent weeks. The latest rebound in the Aussie seems to be driven by a modest improvement in global risk appetite, following a shift in tone from the United States over the weekend regarding its relationship with China. Softer rhetoric out of Washington helped ease fears of a fresh escalation in trade tensions between the world’s two largest economies, an issue that has far-reaching consequences for global markets, and for Australia.
Why does this matter for the AUD? Australia’s economy is deeply tied to China, its largest trading partner, especially through exports of commodities like iron ore and coal. As a result, the AUD often reacts sharply to any headlines or developments that affect the broader US-China relationship. When tensions rise, investors tend to flee risk-sensitive currencies like the AUD in favour of safer assets, such as the USD. When tensions ease, the Aussie tends to benefit.
Monday’s bounce comes despite ongoing strength in the USD, which has been supported by high US Treasury yields and expectations that the Federal Reserve will keep interest rates higher for longer to combat persistent inflation. That the AUD is holding its ground in the face of a stronger Greenback may signal that market sentiment is shifting—at least for now—in favour of more risk-on positioning. Still, analysts caution that the AUD remains vulnerable in the near term.
Economic data from China, ongoing geopolitical developments and the direction of US interest rates will all continue to play a critical role in shaping the AUD/USD exchange rate. Any renewed signs of strain in the US-China relationship or global growth concerns could quickly reverse recent gains. For now, however, the Aussie appears to have caught its breath, as calmer geopolitical winds give traders a reason to step back in.
Key Movers
The US dollar (USD) found some support around the 98.80 level after retreating from the mid-99.00s on Friday, as market jitters followed President Trump’s threat to impose 100% tariffs on Chinese goods. The announcement added to an already tense environment for global markets, contributing to a wave of risk aversion and currency volatility.The US Dollar Index (DXY), which measures the Greenback against a basket of major currencies, pared back some of its recent losses on Monday. However, the index is struggling to firmly reclaim and hold above the 99.00 threshold, with trading conditions remaining choppy across major currency pairs. Mixed economic signals, ongoing geopolitical tensions and an increasingly uncertain domestic political landscape are all keeping investors on edge.
One significant source of that uncertainty is the ongoing US federal government shutdown, which has now entered its third week with little sign of a resolution. The prolonged impasse is adding to concerns about potential disruptions to economic activity and public services, further clouding the near-term outlook for the US economy. Against this backdrop, market expectations for further easing by the Federal Reserve have continued to solidify.
Investors are now almost fully pricing in a 25-basis-point interest rate cut at the Fed’s late October policy meeting, with a strong chance of another cut before the end of the year, possibly in December. The shift in rate expectations reflects both slowing global growth and mounting domestic headwinds. All eyes will be on Federal Reserve Chair Jerome Powell, who is scheduled to speak on Thursday.
Market participants will be listening closely for any signals about the central bank’s future policy direction, especially in light of rising recession risks and persistent inflationary pressures. Powell’s comments could provide critical clues about whether the Fed will stick to its current cautious path, or take more aggressive steps to support the economy.
Until then, the USD is likely to remain sensitive to headlines, especially those related to US-China trade tensions, fiscal negotiations in Washington and upcoming economic data releases.
Expected Ranges
- AUD/USD: 0.6400 - 0.6600 ▲
- AUD/EUR: 0.5550 - 0.5750 ▲
- GBP/AUD: 2.0350 - 2.0550 ▼
- AUD/NZD: 1.1300 - 1.1500 ▲
- AUD/CAD: 0.9050 - 0.9250 ▲