The Australian Dollar (AUD) slipped further against the US Dollar (USD) on Wednesday, marking its third straight session of declines. The AUD/USD pair stayed under pressure after the People’s Bank of China (PBOC) opted to maintain its one- and five-year Loan Prime Rates (LPRs) at 3.00% and 3.50%, respectively.
The central bank’s cautious stance highlights ongoing concerns about economic growth in China, which often weighs on risk-sensitive currencies like the Australian Dollar. In his article, broker Kevin Martin from Highmont Group delivers expert commentary and insights.
US-China Trade Talks and Tariff Developments
Positive signals from US-China trade discussions have bolstered the US Dollar further. US Treasury Secretary Scott Bessent stated that talks between Washington and Beijing are progressing smoothly, emphasizing that the current tariff framework remains effective.
China continues to contribute significantly to US tariff revenue, which has helped support the Greenback amid global market uncertainties.
Meanwhile, the US Administration expanded tariffs on steel and aluminum imports, including 407 new product codes in the US Harmonized Tariff Schedule, set to take effect on August 18. Further levies on semiconductor imports are reportedly under consideration.
Such trade policy measures have traditionally reinforced the US Dollar’s safe-haven status, pressuring the AUD/USD pair.
Geopolitical Developments and Ukraine-Russia Peace Talks
Geopolitical factors also play a critical role in the recent AUD weakness. Reports indicate a potential bilateral meeting between the Russian President and the Ukrainian President is underway, signaling possible progress in peace negotiations.
However, the US President clarified that American troops would not be deployed to enforce any peace agreement, keeping military risks contained but limiting the direct influence of the US on ground operations.
Ukraine’s President welcomed the US role in security guarantees and confirmed significant US arms procurement plans. In addition, US Secretary of State Marco Rubio highlighted ongoing cooperation with European allies and non-European nations to ensure robust security guarantees for Ukraine.
These geopolitical dynamics have contributed to the US Dollar Index (DXY) gaining ground, as investors favor the USD amid global uncertainty.
US Dollar Gains Ahead of Federal Reserve Guidance
The US Dollar Index (DXY), which tracks the USD against 6 major currencies, has strengthened for the third consecutive session, trading near 98.30 at the time of writing. Market participants are closely monitoring the upcoming Jackson Hole Economic Policy Symposium, particularly Fed Chair Jerome Powell’s remarks, for guidance on monetary policy and a potential September interest rate decision.
Recent US economic data continues to support a dovish Fed outlook, with CME FedWatch suggesting an 86.5% probability of a 25-basis-point rate cut in September. This environment favors the US Dollar, as markets anticipate accommodative monetary policy to support economic growth in the latter part of the year.
Australian Economic Indicators and RBA Actions
Despite the AUD’s underperformance, Australian macroeconomic data show some improvement. Westpac Consumer Confidence surged 5.7% in August to 98.5, the highest since February 2022, indicating growing consumer optimism following RBA rate cuts totaling 75 basis points since January.
Matthew Hassan, Head of Australian Macro-Forecasting, noted that prolonged consumer pessimism may be reversing, though additional monetary easing might be required to sustain momentum.
In line with expectations, the Reserve Bank of Australia (RBA) delivered a 25-basis-point interest rate cut on Tuesday, lowering the Official Cash Rate (OCR) from 3.85% to 3.60%. While this action reflects the RBA’s accommodative stance, it continues to exert downward pressure on the AUD relative to the USD.
Technical Analysis of AUD/USD
From a technical perspective, the AUD/USD pair trades around 0.6450, signaling short-term bearish momentum. The pair remains below the nine-day Exponential Moving Average (EMA), indicating persistent downward pressure. The 14-day Relative Strength Index (RSI) sits below the 50 level, reinforcing a bearish market bias.
On the downside, support levels include the two-month low at 0.6419 and the three-month low at 0.6372. These levels may attract buyers, but downside risks remain elevated as long as the AUD/USD remains under key resistance levels.
On the upside, the nine-day EMA at 0.6486 and the 50-day EMA at 0.6497 serve as immediate resistance zones. A break above these levels could signal a short- and medium-term recovery, targeting the monthly high at 0.6568 and potentially the nine-month high at 0.6625.
Conclusion
The Australian Dollar’s decline reflects a combination of RBA rate cuts, subdued Chinese economic signals, and a strengthening US Dollar amid positive trade developments and geopolitical considerations.
Market participants are now awaiting FOMC meeting minutes and Fed Chair Jerome Powell’s upcoming remarks for further insights into the US monetary policy trajectory. Technically, the AUD/USD pair remains under pressure, with short-term momentum favoring bears unless significant upside catalysts emerge.
