Aussie dollar rises on renewed risk appetite amid US-China trade optimism
Written by
Daily Currency Update
The Australian dollar advanced modestly on Monday, with the AUD/USD pair appreciating by 0.35%, to trade around US$0.6520 at the time of writing. The move higher comes as market sentiment improves, supported by signs of easing trade tensions between the United States and China, two of Australia’s most influential economic partners.Investors welcomed reports suggesting a more constructive tone in recent diplomatic engagements between Washington and Beijing. Hopes for a thaw in trade relations helped lift risk-sensitive assets, including the Australian dollar, which often serves as a proxy for global risk sentiment due to Australia's export-heavy economy and strong trade links with China. Australia’s economy stands to benefit directly from any sustained improvement in China’s economic outlook or trade dynamics, particularly given that China remains its largest trading partner and a major consumer of Australian commodities such as iron ore and coal. However, the rally in the Aussie was somewhat tempered by the latest macroeconomic data out of China.
According to figures released by the National Bureau of Statistics (NBS), China’s Gross Domestic Product (GDP) grew by 4.8% year-on-year in the third quarter, slightly below the 5.2% pace recorded in Q2. On a quarterly basis, growth edged up by 1.1%, marginally exceeding analyst expectations and suggesting that the world’s second-largest economy remains on a fragile recovery path. While the quarterly beat offered some reassurance, the slower annual growth rate underscores lingering structural challenges in China’s economy, including a weak property sector, soft consumer demand and global headwinds affecting exports.
These factors remain critical for the Australian outlook, given the economy's reliance on external demand. Looking ahead, traders will be closely watching upcoming economic releases and central bank commentary for further guidance. In particular, market participants are likely to scrutinise Chinese industrial production and trade data, as well as Reserve Bank of Australia (RBA) policy signals, for clues on the sustainability of the Aussie’s recent gains.
For now, the combination of improved geopolitical sentiment and resilient quarterly growth figures out of China is lending the Australian dollar some short-term support, although caution remains warranted amid broader uncertainties.
Key Movers
The US Dollar Index (DXY), which tracks the performance of the greenback against a basket of six major currencies, is under pressure at the start of the week, trading around 98.50 at the time of writing. The US dollar’s decline reflects a combination of political uncertainty in Washington and growing market conviction that the Federal Reserve will pivot toward more accommodative monetary policy before the end of the year.Despite easing tensions between the United States and China, which have helped calm global markets, the US dollar has struggled to regain momentum. Investor sentiment remains cautious amid a protracted US government shutdown, now in its 19th day, with no resolution in sight. On Thursday, senators failed for the tenth time to pass legislation to reopen the government, underscoring the deep partisan divide in Congress.
The current funding lapse has now become the third-longest in modern US history, raising concerns about the economic and political fallout should the deadlock continue. The shutdown has already disrupted key federal services and delayed the release of economic data, adding a layer of uncertainty for investors and policymakers alike. Analysts warn that a continued impasse could begin to weigh more heavily on consumer and business confidence, potentially denting growth in the months ahead.
Against this backdrop, expectations for Federal Reserve rate cuts have surged. According to the CME FedWatch Tool, markets are now fully pricing in a 25-basis-point cut at the October meeting, with a 96% probability of a second cut in December. This shift in market expectations reflects not only the political paralysis in Washington but also lingering concerns about slowing global growth, subdued inflation and tightening financial conditions.
While the Fed has so far maintained a cautious tone, recent comments from several policymakers have signalled a growing openness to policy easing if downside risks to the economic outlook persist. For now, the US dollar appears caught between waning geopolitical tension and domestic headwinds that may force the central bank’s hand sooner rather than later.
Further moves in the DXY will likely hinge on developments in Washington, particularly any signs of a breakthrough on the shutdown, as well as upcoming speeches by Fed officials that may provide more clarity on the central bank’s policy trajectory.
Expected Ranges
- AUD/USD: 0.6400 - 0.6600 ▲
- AUD/EUR: 0.5500 - 0.5700 ▲
- GBP/AUD: 2.0500 - 2.0700 ▼
- AUD/NZD: 1.1200 - 1.1400 ▲
- AUD/CAD: 0.9050 - 0.9250 ▲