Australian Dollar edges lower as Fed hike bets grow ahead of Trump-Xi summit
- AUD/USD posts modest losses near 0.7120 in Monday’s early Asian session.
- Fed rate hike bets provide some support to the US dollar and create a headwind for the pair.
- Traders await the Australian job data and the Trump-Xi Summit later on Thursday.
The AUD/USD pair trades with mild losses around 0.7120 during the early Asian session on Monday. The US dollar (USD) edges higher against the Australian Dollar (AUD) as the US Federal Reserve (Fed) delivered a 25-basis-point rate hike and flagged more hikes in the coming months.
Last week, the Fed raised the interest rates by a quarter point, its first hike in three years, as officials sought to curb inflation. Fed Chair Kevin Warsh said that “the plain fact is that inflation is too high and has been for too long.” “This summer’s inflation readings do not tell me that underlying trends have meaningfully improved,” he added.
Markets are now pricing in nearly a 56.5% chance of another US rate hike when the Fed meets next in October, compared with nearly 42.5% a week ago, according to the CME FedWatch tool.
Traders brace for the Australian jobs report later on Thursday. The Unemployment Rate is projected to remain unchanged at 4.5% in August, while the number of employed people in Australia is expected to rise by 20,000 during the same period. Any signs of improvement in the Australian labour market could boost the Aussie against the USD in the near term.
US President Donald Trump and Chinese President Xi Jinping are scheduled to meet in Washington this Thursday to discuss the US–China tariff truce. This event will be closely watched by markets.
Aussie rebound leaves UOB watching key resistance at 0.7140
Strategists at UOB Group note that their “1-3 weeks view” on AUD/USD remains intact despite the latest volatility. They recall that on Tuesday, 15 September, with spot at 0.7135, they had highlighted that “while further weakness is not ruled out, short-term conditions are oversold, and AUD must close below 0.7100 before a move to 0.7050 can be expected.” After the pair subsequently fell and closed at 0.7087, UOB reiterated yesterday (17 September, spot at 0.7090) that AUD “is expected to drop to 0.7050.”
While the bank concedes that “we did not expect the subsequent strong rebound,” they stress that they “will maintain our view as long as AUD holds below 0.7140 (no change in ‘strong resistance’ level).” In UOB’s assessment, “a breach of 0.7140 would mean the decline from early this week … has stabilised,” effectively signalling that the recent downside phase has run its course.
Schmid backs rate hike as inflation seen stuck above 3 percent
Fed’s Schmid delivered a distinctly hawkish message, with an FXS Speechtracker score of 8/10, above the speaker’s established baseline of 7.2/10. Emphasizing that the recent rate hike was a step toward restoring inflation to the 2% target, Schmid highlighted that price pressures are running above 3% and are broad-based rather than confined to energy, even as the broader economy and labor market are described as solid and balanced.
The FXS Fed Sentiment Index rose by 0.42 points to 152.09, reinforcing a firmly hawkish stance well above the neutral 100 threshold. The combination of an elevated FXS Speechtracker score and a higher FXS Fed Sentiment Index underlines a Fed communication tilt that supports further DOLLAR resilience as markets price in a more persistent restrictive policy path.
Technical Analysis: AUD/USD maintains a constructive outlook in the near term
In the daily chart, AUD/USD holds a mildly bullish near-term bias as spot advances above the 100-day simple moving average (SMA) and the lower Bollinger band. However, price remains below the 20-day Bollinger SMA at roughly 0.7164, keeping the topside capped for now, while the Relative Strength Index (14) around 48 hints at consolidative rather than impulsive momentum.
On the topside, initial resistance emerges at the Bollinger middle band near 0.7165, with a subsequent barrier at the upper band around 0.7235. On the downside, immediate support is seen at the recent pivot zone around 0.7120, followed by the lower Bollinger band at 0.7091 and the 100-day SMA near 0.7078; a daily close below this cluster would weaken the constructive bias and expose deeper retracements.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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