Some near-term consolidation appears likely

• AUD/USD managed to regain some balance after Monday’s sell-off.
• The US dollar weakened, which provided some relief to the risk complex.
• Australia’s current account deficit widened in the third quarter.

The US dollar (USD) faced renewed downward pressure, partially erasing Monday’s bullish move and approaching key support around the 106.00 level as measured by the dollar index (DXY).

Against this background, the Australian dollar (AUD) managed to gain some fresh air and make up some of the ground lost at the beginning of the week, although it was in a consolidation phase lasting several days and has so far been well below the 0.6500 mark.

The Australian’s rebound was driven by a significant increase in Australian exports such as copper prices, while iron ore prices also continued their ongoing recovery, albeit at a slower pace. However, the Australian currency also shrugged off concerns about the Chinese yuan’s ongoing sharp loss of momentum, weighed down by new US tariff threats and weak domestic economic data. However, ongoing doubts about the effectiveness of China’s stimulus measures are expected to continue to weigh on Australia’s commodity-based economy.

RBA: Stable as she goes

The Reserve Bank of Australia (RBA) maintained its cautious approach and kept interest rates stable at 4.35% in early November. Although the country remains focused on combating inflation, it is clear that concerns about slowing economic growth are shaping its policy course. Gov. Michele Bullock stressed the importance of keeping monetary policy tight until inflation shows clear signs of a sustained slowdown.

Australia’s inflation data paints a mixed picture. The RBA’s monthly CPI indicator remained at 2.1% in October, but policymakers were quick to warn that a single quarter’s data showed no trend. Interest rate cuts remain off the table for now.

AUD/USD: What lies ahead

The path for the AUD/USD pair is full of risks and opportunities. The Aussie could gain traction if the Federal Reserve (Fed) moves to cut interest rates. However, challenges remain, including inflationary pressures from US policy and the continued strength of the greenback.

China’s economic slowdown continues to cast a long shadow over Australia’s growth prospects. However, there were some bright spots in October: the Australian labor market remained stable with an unemployment rate of 4.1% and 16,000 new jobs were created.

Market expectations suggest the RBA could consider rate cuts as early as the second quarter of 2025 if inflation continues to cool. Policymakers have stressed the importance of sustained progress before easing monetary policy.

Important dates to keep track of

Traders are keeping an eye on several upcoming data releases, including GDP data on Wednesday, trade balance numbers on Thursday and home loan data on Friday.

AUD/USD daily chart

AUD/USD Technical snapshot

On the technical front, AUD/USD faces resistance at 0.6549 (the weekly high set on November 25), followed by the 200-day Simple Moving Average (SMA) at 0.6626. If bullish momentum increases, the pair could challenge the November peak of 0.6687 set on November 7th.

On the other hand, immediate support lies at the November low of 0.6433, while the next significant level lies at the 2024 low of 0.6347 marked on August 5th. These levels could provide some cushion if selling pressure increases.

Momentum indicators suggest some consolidation sentiment on the four-hour chart. The Relative Strength Index (RSI) fell to 47, while the Average Directional Index (ADX) signals a weak trend around 13. Resistance remains at 0.6549 while initial support lies at 0.6442 followed by 0.6433.

In summary, AUD/USD remains under pressure as a mix of global and domestic factors weigh heavily on sentiment. While there are opportunities for recovery, the path forward will depend heavily on data and developments in both the US and China.