The AUD/USD pair opens with a bullish gap at the start of a new week and confirms a breakout through a nearly two-week-old trading range in reaction to encouraging signs of progress in US-China trade discussions. In fact, top officials from the US and China on Sunday agreed on a framework for a potential trade deal that will be discussed when US President Donald Trump and Chinese President Xi Jinping meet later this week. Adding to this, US Treasury Secretary Scott Bessent said that discussion on the sidelines of the ASEAN Summit in Kuala Lumpur eliminated the threat of 100% tariffs on Chinese imports starting November 1. This soothes investor nerves and eases concerns about an all-out trade war between the world’s two largest economies, which, in turn, boosts the China-proxy Australian Dollar (AUD).
Meanwhile, the optimism triggers a fresh wave of the global risk-on trade and sends stock markets sharply higher. This, along with dovish Federal Reserve (Fed) expectations, undermines the safe-haven US Dollar (USD) and also benefits the risk-sensitive Aussie. According to the CME Group’s FedWatch Tool, traders have nearly fully priced in that the US central bank will lower borrowing costs by 25-basis-points (bps) later this week and cut rates again in December. The bets were reaffirmed by the latest US consumer inflation figures released on Friday. The US Bureau of Labor Statistics reported on Friday that the headline Consumer Price Index rose by 0.3% in September, putting the annual inflation rate at 3%. Excluding food and energy, the gauge showed a 0.2% monthly gain and an annual rate stood at 3%.
The AUD/USD pair, however, struggles to attract any strong follow-through buying amid rising bets for more interest rate cuts by the Reserve Bank of Australia (RBA). Traders also seem reluctant to place aggressive directional bets ahead of the crucial two-day FOMC policy meeting, starting on Tuesday, and the highly anticipated Trump-Xi meeting on Thursday. The Fed’s outlook will play a key role in influencing the near-term USD price dynamics, which, along with trade-related developments, should provide a fresh directional impetus to the AUD/USD pair.
AUD/USD daily chart
Technical Outlook
Against the backdrop of last week’s bounce from the vicinity of the very important 200-day Simple Moving Average (SMA), a convincing breakout through a short-term trading range could be seen as a key trigger for the AUD/USD bulls. A subsequent move beyond the 38.2% Fibonacci retracement level of the September-October downfall, along with the fact that oscillators on the daily chart have just started gaining positive traction, suggests that the path of least resistance for spot prices is to the upside. Hence, some follow-through move higher towards the 0.6575-0.6580 area, en route to the 0.6600 round figure, looks like a distinct possibility. This is followed by the 0.6615-0.6620 supply zone, which, if cleared decisively, should pave the way for a move towards retesting the year-to-date high, around the 0.6700-0.6710 region, touched in September.
On the flip side, any intraday pullback might now be seen as a buying opportunity near the trading range resistance breakpoint, around the 0.6525 region. This should help limit the downside for the AUD/USD pair near the 0.6500 psychological mark. A convincing break below the latter, however, might negate the constructive outlook and prompt some technical selling. Spot prices might then challenge the monthly swing low, around the 0.6440 area, before eventually dropping to the 0.6400 round figure en route to the July swing low, around the 0.6375-0.6370 region. The downward trajectory could extend further towards the 0.6300 round figure with some intermediate support near the 6350 zone.
