The AUD had a volatile week, initially pressured by global risk-off sentiment and weak China data, but later rebounding sharply as the US Dollar reversed lower. The RBA’s hawkish hold was the key anchor — the Bank lifted its core inflation outlook and signaled no near-term rate cuts, supporting AUD yields. Once US data softened and risk sentiment improved, the AUD moved higher, helped by firmer commodity prices.

AUD: Bullish

The Australian Dollar experienced a volatile week, initially pressured by global risk aversion but ending stronger after a sharp reversal in the US Dollar. The AUD began the week under heavy selling pressure as a strong US Dollar and a broad equity sell off drove investors away from higher yielding currencies. The Reserve Bank of Australia delivered a hawkish hold on Tuesday, but the negative market tone initially prevented the currency from benefiting. As global sentiment turned later in the week, the AUD rallied sharply, supported by both its hawkish domestic policy backdrop and firmer commodity prices.

The RBA kept its cash rate at 3.60% but delivered a notably hawkish statement. It sharply raised its core inflation forecasts through mid 2026 and removed a previously projected rate cut, now anticipating only one in 2026 instead of two. Governor Bullock emphasized that monetary policy is “at the right spot at the moment” and confirmed that no near term rate cut was under consideration. While the hawkish tone was initially overshadowed by global risk off sentiment, it provided a strong foundation for the AUD’s recovery once the US Dollar weakened later in the week.

Economic data within Australia was light, keeping focus on the RBA’s message. From abroad, data from China, Australia’s largest trading partner weighed on sentiment early in the week. The RatingDog Manufacturing PMI showed a sharp drop in export orders, and later, official trade data revealed a year on year fall in Chinese exports, further clouding the regional growth outlook.

The broader environment dominated early trading. Risk sentiment deteriorated sharply after a sell off in major US tech stocks triggered global equity weakness, limiting appetite for risk sensitive currencies like the AUD. This reversed late in the week when a series of disappointing US labor indicators and a poor University of Michigan sentiment report drove a steep decline in the US Dollar. The shift ignited a strong rebound in the Australian Dollar, which was further supported by higher base metal prices, especially copper, reinforcing its late week outperformance.

The Australian Dollar traded with its typical high beta profile last week, falling early on global equity weakness before rebounding sharply as risk sentiment and the US Dollar both reversed. The RBA’s hawkish hold provided a solid domestic anchor, and once US data triggered a broad Dollar sell off, the combination of tighter RBA guidance and firmer commodity prices pushed the AUD higher into the weekend.

Near term, bullish. The RBA’s stance was clearly more hawkish than markets anticipated. By lifting core inflation forecasts and removing a projected 2026 rate cut, the Bank signaled confidence in the domestic outlook and reduced the likelihood of near term easing. Governor Bullock’s comment that policy is “at the right spot” but not ready to pivot lower gave front end yields further support. That message, combined with improved global risk tone and higher base metal prices, positions the AUD to extend gains if upcoming labor and consumer data hold steady. The main risk is renewed US Dollar strength or another wave of global risk aversion, but near term momentum and yield support now favor the upside.

Longer term, bullish. The medium run story remains one of relative policy durability. The RBA is likely to keep rates steady well after the Fed begins to ease, narrowing the rate gap in Australia’s favor. Terms of trade are underpinned by stable commodity demand, and the domestic economy continues to absorb restrictive policy without severe cracks in employment or spending. As global inflation and growth settle into a softer but stable balance, capital should gradually rotate back toward higher yielding, pro cyclical currencies like the AUD. The path will remain volatile, but the broader trend still points to appreciation over time.

If sentiment or policy guidance shifts, for instance if the RBA softens its tone, labor data weaken, or Chinese activity slows further, the near term stance could quickly revert toward neutral. Conversely, if inflation or wage data remain firm and global risk appetite stays steady, the AUD’s bullish bias should persist.

USD: Short at rally

The US Dollar experienced sharp swings during a volatile week as optimism over US economic strength quickly faded after several weak data releases. The DXY started the week strong, breaking above 100.00, supported by a solid ADP employment report and a stronger-than-expected ISM Services PMI, where the Prices Paid index surged to a three-year high, reinforcing expectations of a hawkish Federal Reserve. However, this momentum reversed sharply on Thursday after weak labor market proxies, including a surge in Challenger job cuts, led to renewed concerns about the economy. The sell-off accelerated Friday after a poor University of Michigan consumer sentiment report showed confidence plunging to 50.3, its lowest in years, due to the ongoing government shutdown, while inflation expectations climbed higher. This stagflationary combination sent the dollar to a weekly low near 99.40, erasing earlier gains and shifting sentiment from US strength to recession fears.

Mid-week data briefly supported the dollar as the ADP report showed a 42,000 job increase versus expectations of 28,000, a clear rebound from the previous month’s loss. The ISM Services PMI rose to 52.4, well above expectations, while the Prices Paid index jumped to 70.0, signaling persistent inflation pressures. However, Thursday’s reports painted a much weaker picture. Challenger Job Cuts surged 175.3% month-on-month to 153,000, RevelioLabs’ employment estimate showed a 9,100 job loss, and the Chicago Fed’s unemployment estimate climbed to 4.36%. Friday’s University of Michigan survey confirmed the downturn with sentiment dropping sharply and inflation expectations rising to 4.7%. Earlier in the week, the ISM Manufacturing PMI had also missed expectations at 48.7, but it was initially ignored as markets focused on the stronger services data.

Federal Reserve officials maintained a cautious tone as the government shutdown delayed key data releases. Goolsbee said the Fed should slow down its actions when visibility is poor, while Vice Chair Jefferson noted growing downside risks to employment. In contrast, Hammack argued that policy was barely restrictive and voiced concern about persistent inflation, particularly after the hot ISM Services Prices Paid data. Despite the volatility, market expectations for a December rate cut remained stable within a 16–17 basis point range. The dollar’s decline reflected fears of a broader slowdown rather than expectations for earlier cuts. The government shutdown remained unresolved, with a Democratic proposal to end it rejected late Friday, extending uncertainty.

Trade and geopolitical developments added further tension. The US and China clashed over AI chip sales after the White House blocked NVIDIA from selling modified chips to China, while Beijing ordered domestic AI chip use in state-funded projects. The Supreme Court also began reviewing the legality of tariffs imposed by the previous administration. Some minor signs of easing appeared, such as China’s purchase of US wheat and the suspension of certain rare earth export controls.

Market sentiment shifted dramatically through the week. Early optimism around US economic resilience gave way to fears of stagflation and recession. Weak labor data and the collapse in consumer confidence triggered a broad risk-off move, hitting both the dollar and equities. Additional pressure came from concerns over inflated valuations in AI stocks, especially after Palantir’s drop despite strong earnings and NVIDIA’s warning that China could outpace the US in AI development. The prolonged government shutdown further undermined sentiment and reinforced the perception of rising economic risk.

The Dollar held most of last week’s gains as the market stayed with the idea that the Fed’s cut was an insurance move and not the start of fast easing. Front end US yields stayed supported, rate differentials versus peers remained wider, and that kept the Dollar bid even while global risk sentiment stayed constructive. Inflation expectations moved higher, so the market is still willing to price some inflation risk even though parts of the realised data have been steadier.

Near term, neutral with a bearish tilt. The domestic driver is still the post Fed repricing toward a pause, but that is now largely in the price. That means upside needs a clear confirmation from CPI, retail sales or Fed communication, while downside only needs data to underwhelm. If CPI comes in softer or activity shows loss of momentum, markets can quickly rebuild December cut odds and shave off the recent policy premium, pushing the Dollar lower against the basket. External conditions are not providing a strong haven bid at the moment, so a small disappointment on US data has a better chance of showing up in the Dollar than an equivalent upside surprise. If inflation data match the rise in expectations and front end yields push up again, the neutral call can hold at current levels.

Longer term, weak bearish. The Fed is still closer to easing than several peers and the committee is already split which is typical for late cycle risk management. US growth is still respectable but the mix of softer housing, uneven business investment and fiscal noise points to slower momentum into year end. As the global backdrop steadies and other central banks close some of the rate gap, relative yield support for the Dollar should erode and the currency should underperform gradually. The Dollar will still find support on episodes of global stress or a sudden tightening in credit, so the path lower will not be straight.

If the narrative flips and the Fed is pushed by data or its own communication back toward a December cut, or if front end yields fall as markets rebuild a more aggressive easing path, we will reconsider and lean toward a weaker Dollar until the data and market pricing improve. A stronger global risk tone with better PMIs abroad and narrower US rate differentials would have the same effect.

AUD/USD 4H

Disclaimer

This material is provided for informational purposes only and does not constitute financial, investment, or other advice. The opinions expressed in this material are those of the author and do not necessarily reflect the views of Trive International. No opinion contained in this material constitutes a recommendation by Trive International or its author regarding any particular investment, transaction, or investment strategy. This material should not be relied upon in making any investment decision.

The information provided does not consider the individual investment objectives, financial situation, or needs of any specific investor. Investors should seek independent financial advice tailored to their individual circumstances before making any investment decisions. Trive International shall not be liable for any loss, damage, or injury arising directly or indirectly from the use of this information or from any action or decision taken as a result of using this material.

Trive International may or may not have a financial interest in the companies or securities mentioned. The value of investments may fluctuate, and investors may not get back the amount they originally invested. Past performance is not indicative of future results.

For more information about Trive International, please visit http://trive.com/int

Additional Information

Investing involves risk, including the potential loss of principal. Diversification and asset allocation strategies do not ensure a profit or guarantee against loss. The content in this material is subject to change without notice and may become outdated or inaccurate over time. Trive International does not undertake any obligation to update the information in this material.

By accessing this material, you acknowledge and agree to the terms of this disclaimer. If you do not agree with these terms, please refrain from using this information.