AUD/USD Analysis: Weakness Remains Capped as Policy Divergence Supports the Pair

AUD/USD continues its bearish streak, but deeper losses face resistance

The Australian Dollar has extended its losing run for a fourth consecutive session, with AUD/USD trading near the 0.6630 level and posting a marginal 0.10% decline as Asian markets open. The currency pair’s struggle reflects a confluence of headwinds pressing on risk sentiment across global markets.

Multiple headwinds test the Australian Dollar

The weakness stems from several converging factors. Australia’s labor market data from last Thursday painted a mixed picture, adding to uncertainty around the currency. More significantly, disappointing economic releases from China—the world’s second-largest economy—surfaced on Monday and have reignited concerns about Beijing’s growth trajectory. These macro concerns coincide with a broader softening in global equities, which typically pressures higher-yielding currencies like the AUD.

RBA’s firm stance provides a protective floor

What prevents steeper AUD/USD declines is the Reserve Bank of Australia’s resolute positioning on monetary policy. RBA Governor Michele Bullock reiterated last week that additional rate reductions appear unnecessary, while noting that the Board contemplated scenarios requiring higher rates. This hawkish undertone contrasts sharply with global central bank trends and provides structural support to the Australian Dollar.

USD weakness compounds the picture

Parallel to RBA strength is persistent US Dollar selling pressure. The US Dollar Index (DXY), which measures the Greenback’s relative value, sits near October 7’s lows amid growing market conviction that the Federal Reserve will pursue additional rate cuts. Speculation surrounding a potential dovish successor to Fed Chair Jerome Powell further undermines USD demand, creating a secondary tailwind for AUD/USD despite broader risk-off conditions.

Traders adopt a wait-and-see approach

Market participants appear cautious about aggressive positioning ahead of October’s US Nonfarm Payrolls (NFP) report, the key labor data that was delayed. This hesitation to commit suggests the AUD/USD pair’s three-week rally may be running on fumes, though pronounced downside requires fresh selling confirmation to suggest a genuine reversal of the established trend.