The Australian Dollar (AUD) continues to face significant downward pressure, as market sentiment remains dominated by concerns over slowing domestic growth and rising expectations that the Reserve Bank of Australia (RBA) may cut interest rates in early 2025. The latest economic data, coupled with a disappointing report from China’s services sector, has intensified fears about the fragile recovery in the world’s second-largest economy. The combination of these factors, along with geopolitical tensions and a slight uptick in the US Dollar (USD), has driven the AUD/USD pair down to the 0.6400 region, marking its lowest point since August.
Despite the strength of the US Dollar, which is benefiting from positive US labor market data and speculation that the Federal Reserve will adopt a cautious stance on rate cuts, the USD bulls appear hesitant. Many traders are waiting for Federal Reserve (Fed) Chair Jerome Powell’s upcoming speech for clearer guidance on the future interest rate outlook. In the meantime, persistent geopolitical risks, combined with concerns over a second wave of global trade wars, continue to support the USD’s bullish momentum, keeping the AUD under pressure.
RBA Rate Cut Bets Grow as Australia’s Economic Growth Slows
Australia’s economic performance showed signs of weakness this week, with the Australian Bureau of Statistics (ABS) reporting that GDP growth for the third quarter was just 0.3%, missing expectations for a 0.4% increase. On an annual basis, growth was 0.8%, falling short of the 1.1% forecast. In response, Treasurer Jim Chalmers acknowledged the weak growth but highlighted the positive trend in real disposable incomes. Nonetheless, the market quickly priced in a rate cut by the RBA, with odds of a 35 basis point reduction in May 2025 rising from 28 bps previously.
In addition, the latest data from China painted a bleak picture for the global recovery, with the Services Purchasing Managers’ Index (PMI) for November falling to 51.5 from 52.0 in October, below expectations. This has raised concerns about the sustainability of China’s economic recovery, further exacerbated by the US’s new export controls on key semiconductor-manufacturing technology and high-bandwidth memory. The US also unveiled a set of restrictions aimed at curbing China’s technological advancements, with US President-elect Donald Trump threatening tariffs on BRICS nations, which could further disrupt global trade.
US Labor Market Data Supports the USD Amid Inflation Concerns
The latest US labor market data, including the Job Openings and Labor Turnover Survey (JOLTS), revealed a higher-than-expected number of job openings in October, reaching 7.74 million. This marked an increase from September’s 7.37 million and alleviated concerns about a significant slowdown in the US economy. Market participants are now reassessing the likelihood of aggressive rate cuts by the Federal Reserve, especially with the potential inflationary impact of Trump’s economic policies.
While the US Dollar gained momentum from the upbeat data, it failed to sustain significant upward movement as traders remain uncertain about the Fed’s next moves. San Francisco Fed President Mary Daly stated that the US economy is in a favorable position, with the labor market in balance and not contributing significantly to inflation. Meanwhile, Chicago Fed President Austan Goolsbee suggested that the Fed may need to reduce rates significantly over the next year if inflation comes under control.
Market attention is now shifting to Jerome Powell’s upcoming speech, which is expected to provide more clarity on the Fed’s stance. Additionally, the US Nonfarm Payrolls (NFP) report due on Friday will be key in guiding expectations for future monetary policy.
AUD/USD Technical Outlook: Bearish Bias Persists
From a technical perspective, the AUD/USD pair remains vulnerable, with recent weakness below the 0.6440-0.6435 region signaling a breakdown of a short-term trading range that had held for the past two weeks. The Relative Strength Index (RSI) on the daily chart remains in negative territory, and the pair is far from being in oversold conditions, suggesting that further downside movement is likely.
If the pair breaks below the 0.6400 level, it may retest the year-to-date low of 0.6350-0.6345, which was reached in August. On the upside, any recovery above the 0.6500 psychological barrier will likely face strong resistance, particularly near the 0.6535-0.6540 zone. A sustained move beyond this resistance could lead to a short-covering rally, potentially pushing the pair toward the 0.6600 level, with further gains possible if it clears the 200- and 50-day Simple Moving Averages (SMAs) around 0.6625-0.6630.
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