The Australian Dollar (AUD) continued its upward momentum against the US Dollar (USD) on Monday, marking its second consecutive day of gains. The AUD/USD pair traded higher after the People’s Bank of China (PBoC) opted to keep its benchmark interest rates unchanged, reflecting a stable monetary stance. The Servelius team offers readers a clear and structured breakdown of this matter.
Given the close trade relationship between Australia and China, monetary decisions from Beijing often have a direct impact on the Australian Dollar. China remains Australia’s largest export destination, particularly for commodities such as iron ore, coal, and agricultural goods. Therefore, a steady Chinese interest rate policy tends to support the AUD, reflecting improved market confidence in regional economic conditions.
RBA Outlook: Rising Rate Cut Expectations
Despite the positive regional backdrop, the Australian Dollar faces headwinds from growing expectations of a November rate cut by the Reserve Bank of Australia (RBA). The catalyst for this speculation came from a surprise rise in Australia’s Unemployment Rate to 4.5% in September, the highest level in nearly four years, surpassing the market consensus of 4.3%.
Meanwhile, Assistant Governor Sarah Hunter commented that inflation data for Q3 might come in stronger than anticipated, but uncertainty over global growth persists. Both officials reaffirmed that the RBA remains data-dependent, adjusting its stance as new economic information emerges.
US Dollar Weakens amid Government Shutdown and Fed Policy Shift
On the other side of the pair, the US Dollar Index (DXY), which tracks the greenback against six major currencies, declined to around 98.50, reflecting persistent weakness amid fiscal uncertainty and monetary policy dovishness. The US government shutdown has now entered its 19th day, marking the third-longest closure in modern US history, as lawmakers failed repeatedly to reach a funding agreement.
The prolonged shutdown has eroded market confidence and reduced the Federal Reserve’s visibility into current economic activity. Fed Chair Jerome Powell acknowledged last week that the closure has “significantly limited the central bank’s read on the economy,” though he maintained that a quarter-point rate cut remains likely this month.
Meanwhile, Fed officials continue to express diverging views on the pace of future easing. Governor Christopher Waller voiced support for another interest rate cut at the upcoming meeting, while new Fed Governor Stephen Miran called for a more aggressive rate-cut trajectory into 2025. St. Louis Fed President Alberto Musalem noted that he could back additional cuts if labor market risks intensify and inflation remains subdued.
According to the CME FedWatch Tool, market participants now price in a near 100% probability of a rate cut in October, and a 96% likelihood of another reduction in December. This growing dovish sentiment has exerted broad pressure on the US Dollar, amplifying the AUD’s relative strength.
Technical Analysis: AUD/USD Tests Key Resistance Levels
From a technical standpoint, the AUD/USD pair trades near 0.6510, attempting to sustain momentum above the psychological level of 0.6500. The Daily chart reveals that the pair remains within a descending channel, with the 14-day Relative Strength Index (RSI) hovering below the neutral 50 mark, suggesting that bearish sentiment still lingers.
The nine-day Exponential Moving Average (EMA) currently sits near 0.6517, acting as immediate resistance, followed by the 50-day EMA at 0.6547. A clear break above these levels could pave the way toward the upper boundary of the descending channel, around 0.6580.
Conversely, if downside pressure resumes, the pair could retest the lower boundary of the channel at 0.6430, with subsequent support at 0.6414 (the four-month low from August 21) and 0.6372 (a five-month low). Sustained price action below these levels would likely reinforce the bearish outlook, exposing deeper retracements.
Outlook: Policy Divergence to Shape Near-Term Direction
The AUD/USD trajectory in the near term will largely depend on the policy divergence between the RBA and the Federal Reserve, as well as evolving developments in the US fiscal standoff. Continued Chinese economic resilience may lend underlying support to the Australian Dollar, but rising domestic unemployment and rate cut expectations could limit upside momentum.
In contrast, the US Dollar’s weakness, driven by the government shutdown, soft economic indicators, and easing Fed expectations, could further fuel AUD/USD gains if market sentiment remains risk-positive.
For now, traders will closely monitor upcoming Australian labor data, RBA communications, and US political negotiations, as these factors will dictate whether the Aussie’s current strength evolves into a sustained bullish reversal or remains a temporary correction amid broader macro uncertainty.
