Australian Dollar Struggles as Markets Brace for RBA Rate Cut
Mixed economic signals keep AUD/USD trapped while traders eye China’s next move
The Australian Dollar (AUD) kicked off the week under renewed selling pressure, extending Friday’s pullback and once again testing the crucial 0.6500 level against the US Dollar (USD). The greenback gained extra momentum ahead of this week’s US inflation data and a looming trade deadline, adding further weight to the pair.
Australia’s latest economic data painted a confusing picture. Headline CPI for Q2 rose 0.7% QoQ and 2.1% YoY, while June’s Monthly CPI Indicator slowed to 1.9%, suggesting inflation is easing—but stubbornly. On the positive side, activity data was surprisingly upbeat: manufacturing PMI rebounded to 51.6, services PMI hit 53.8, and retail sales jumped 1.2% in June. Yet the labour market signaled fatigue, adding just 2,000 jobs last month, pushing unemployment to 4.3% as participation rose to 67.1%.
A rare bright spot came from trade data, with the surplus surging to A$5.365 billion in June, up sharply from A$1.604 billion.
All eyes now turn to the Reserve Bank of Australia (RBA). At its early-August meeting, the RBA kept rates steady at 3.85%, but Governor Michele Bullock called it a matter of “timing rather than direction”, hinting that cuts remain possible if inflation cools further. Deputy Governor Andrew Hauser reinforced the message, stressing any easing would be gradual. Markets are now pricing in a 25 basis point cut to the Official Cash Rate (OCR) at the August 12 meeting.
The wildcard remains China, Australia’s largest export market. Data there continues to send mixed signals: Q2 GDP grew 5.2% YoY, industrial production jumped 7%, but retail sales missed expectations. Manufacturing PMI dipped to 49.3, non-manufacturing to 50.1, and July’s Caixin PMI readings echoed the patchy recovery. China’s trade surplus narrowed to $98.24B in July, while CPI inched up 0.4% MoM but stayed flat YoY, showing that demand remains fragile.
Positioning data from the CFTC shows traders increasing bearish bets on the Aussie, with net shorts rising to 83.6K contracts, the highest since April 2024. Open interest also climbed to 164K, an eight-week high.
Technically, the 0.6625 (YTD high from July 24) remains the first resistance, followed by 0.6687 and the psychological 0.7000 mark. Support sits at 0.6418, backed by the 200-day SMA at 0.6388. Momentum is neutral, with RSI near 49 and ADX at 16, suggesting a weak trend.
For now, AUD/USD looks trapped between 0.6400 and 0.6600—waiting for a major catalyst from China, the RBA, or the Federal Reserve to break the deadlock.
