AUD/USD weakens ahead of RBA decision as caution prevails
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Daily Currency Update
The Australian dollar (AUD) softened on Monday, with the AUD/USD pair trading around US$0.6540, down 0.20% on the day. The pullback reflects a combination of modest US dollar (USD) strength, lingering uncertainty around the Reserve Bank of Australia’s (RBA) upcoming policy decision, and renewed concerns over China’s economic momentum.The USD found some support at the start of the week as traders reassessed the Federal Reserve’s policy outlook following last week’s meeting. Although weaker-than-expected US manufacturing data initially weighed on sentiment, the USD managed to recover as investors took a cautious stance ahead of key central bank events.
The ISM Manufacturing PMI remained in contractionary territory, highlighting ongoing softness in the US industrial sector, yet the Fed’s balanced tone has prompted markets to scale back expectations for near-term rate cuts. In Australia, attention is firmly on the RBA’s policy announcement later today. While most economists expect the central bank to keep the cash rate unchanged, markets remain sensitive to any hints of a hawkish bias.
Persistently high inflation and resilient labour market data have left policymakers in a delicate position, balancing the need to rein in price pressures without derailing growth. Any signal that the RBA might tighten policy further could lend near-term support to the Aussie. External factors are also weighing on sentiment toward the AUD.
China’s manufacturing sector, a key driver of regional demand, continues to show signs of fatigue. The Caixin Manufacturing PMI slipped to 50.6 in October, pointing to a slower pace of expansion. At the same time, renewed trade frictions between Washington and Beijing have added another layer of uncertainty for commodity-linked currencies like the AUD.
From a technical perspective, the AUD/USD pair faces immediate support around US$0.6500, with resistance seen near US$0.6580. A break below current levels could expose the pair to further downside, particularly if the RBA maintains a cautious tone.
Overall, the AUD remains under pressure as global and domestic headwinds combine to limit upside potential. Traders will be closely watching the RBA’s statement for any signals on the future path of interest rates, which could set the tone for AUD/USD direction in the days ahead.
Key Movers
The US dollar (USD) lost momentum on Monday after fresh data pointed to continued weakness in the American manufacturing sector. The Institute for Supply Management (ISM) reported that US factory activity contracted for the eighth consecutive month in October, reinforcing signs that the industrial economy remains under pressure despite resilience elsewhere.The ISM Manufacturing PMI fell to 48.7, undershooting market expectations of 49.5 and staying below the 50.0 threshold that separates expansion from contraction. The details of the report were mixed: Production slipped to 48.2, Employment edged slightly higher to 46.0, while Prices Paid eased to 58.0, suggesting some relief on cost pressures. Overall, the data highlighted ongoing softness in new orders and output, underscoring the challenges faced by US manufacturers amid high borrowing costs and slowing global demand.
In contrast, a separate reading from S&P Global painted a somewhat more upbeat picture. Its final US Manufacturing PMI for October came in at 52.5, up from 52.0 in September, indicating modest growth in factory activity according to a different survey methodology. Following the mixed reports, the US Dollar Index (DXY), which measures the Greenback’s performance against a basket of six major peers, slipped from earlier highs. The Index was last seen hovering around 99.83, down from an intraday peak of 99.99, as investors reassessed the outlook for US growth and monetary policy.
The softer ISM data reinforced expectations that the Federal Reserve is likely to maintain its current policy stance, keeping interest rates steady while monitoring incoming data for signs of cooling inflation and demand. Market participants will now turn their attention to upcoming labour market and inflation figures later in the week for further direction on the USD.
While the Greenback remains supported by its safe-haven appeal and relatively high yields, the latest data suggest that its recent rally may be running out of steam as economic momentum moderates.
Expected Ranges
- AUD/USD: 0.6450 - 0.6650 ▼
- AUD/EUR: 0.5550 - 0.5750 ▲
- GBP/AUD: 2.0000 - 2.0200 ▲
- AUD/NZD: 1.1350 - 1.1550 ▲
- AUD/CAD: 0.9100 - 0.9300 ▼