Australian Dollar flatlines near 0.7000 as traders assess Trump-Xi summit
- AUD/USD trades flat near 0.7010 in Friday’s early Asian session.
- China’s Xi said Washington-Beijing ties reach a new historical milestone; major breakthroughs are not expected.
- The RBA is expected to raise its Official Cash Rate next week.
The AUD/USD pair holds steady around 0.7010 during the early Asian trading hours on Friday. Traders continue to assess the developments surrounding the US President Donald Trump and Chinese President Xi Jinping summit at the White House.
Xi Jinping said on Thursday that the US-China ties reached a new historical milestone, saying that they reached broad agreement on numerous issues and a new arrangement after trade talks is good news. A Chinese leader added that Beijing and Washington must find a proper way to coexist peacefully and act as partners rather than rivals, per the Financial Times.
On Thursday, US Treasury Secretary Scott Bessent said that the US and China have agreed to extend a bilateral trade truce that was set to expire in November through January 10.
However, markets see the summit was heavy on symbolism but light on substance, with no sign of breakthroughs on thorny issues such as AI, trade, Taiwan and the war with Iran. Any progress on US-China trade talks could provide some support to the China-proxy Aussie, as China is a major trading partner of Australia.
Australia’s Unemployment Rate climbed to 4.6% in August from 4.5% in July, the Australian Bureau of Statistics showed on Thursday. This report is a crucial piece of the economic puzzle ahead of the Reserve Bank of Australia (RBA) rate decision next week.
It also followed RBA Governor Michele Bullock saying the jobless rate needs to rise for inflation to fall. The market is widely expecting a 25-basis-point RBA rate hike next week, and Thursday’s slight unemployment increase is unlikely to stay the RBA’s hand.
Australia jobs data keeps RBA tightening narrative intact
Brown Brothers Harriman’s Elias Haddad points out that the latest Australia labor force figures were mixed, with the “unemployment rate unexpectedly rose 0.1ppt to 4.6%, which was above consensus and RBA year-end projection of 4.5%.” He stresses, however, that this apparent deterioration in headline joblessness is largely a function of stronger labor supply, noting that “the increase in the jobless rate largely reflects a higher participation rate suggesting some tightness in the labor market persists.” In Haddad’s view, the underlying resilience of labor demand, despite the uptick in unemployment, supports the case for further RBA tightening and underpins the constructive medium-term outlook for the Aussie.
Technical Analysis: AUD/USD
In the daily chart, AUD/USD keeps a bearish near-term tone as spot holds below the 100-day moving average (MA) and the Bollinger middle band. Price is pressing the lower end of the Bollinger envelope, with the lower band now acting as immediate overhead resistance, while the Relative Strength Index (14) at 32.7 hovers near oversold territory, hinting that downside momentum is stretched but not yet reversed.
On the topside, initial resistance is aligned at the Bollinger lower band at 0.7015, followed by the 100-day MA at 0.7070, ahead of a denser cap at the Bollinger middle band near 0.7138; a sustained break above these layers would be needed to ease the current bearish pressure. Further up, the Bollinger upper band at 0.7260 marks a more distant barrier. With no clear structural supports printed below the market in this dataset, AUD/USD remains vulnerable to additional weakness while it trades beneath these clustered resistance levels.
(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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