AUD/USD Trading Near Four-Day Low as Risk Sentiment Fades; Key Data Awaited

The Australian Dollar continues its downward trajectory against the US Dollar, trading around 0.6630 during Asian trading hours on Tuesday—marking the fourth consecutive session of weakness. The decline, though modest at just above 0.10%, reflects a challenging confluence of headwinds facing the AUD.

Mixed Signals from Down Under and Beijing

The weakness in AUD/USD stems from two primary sources of concern for risk-sensitive assets. Australia’s labor market released mixed signals last Thursday, creating uncertainty around economic momentum. Compounding this, disappointing macroeconomic data from China released Monday has reignited worries about the health of the world’s second-largest economy. These developments, paired with a softer tone permeating global equity markets, have pressured the perceived risk appetite and subsequently dented demand for the AUD.

RBA Hawkishness Provides a Floor

Despite the downward pressure, losses remain constrained by divergent monetary policy trajectories between the Reserve Bank of Australia and the Federal Reserve. RBA Governor Michele Bullock signaled last week that the Board sees limited need for additional rate cuts and hinted at potential tightening scenarios if inflation pressures emerge. This hawkish undertone has stabilized the AUD and prevented a deeper selloff in the AUD/USD pair.

US Dollar Under Pressure Amid Fed Expectations

The USD Index, which measures the Greenback’s strength against major currencies, has slumped to levels not seen since October 7, weighed down by growing expectations for further Federal Reserve rate cuts. Market participants are increasingly pricing in additional monetary easing, while the anticipated transition in Fed leadership has also added to uncertainty around the Greenback’s trajectory. This softer USD backdrop provides additional support to AUD/USD, offering some respite to the beleaguered Australian currency pair.

Waiting for US NFP to Break the Impasse

Market participants appear hesitant to establish fresh directional positions ahead of this week’s critical economic releases, particularly the delayed US Nonfarm Payrolls figure for October. This cautious stance suggests that any decisive move in AUD/USD may hinge on the employment data, as traders seek confirmation of either sustainable weakness or a potential reversal. Until strong evidence emerges, the pair’s recent three-week uptrend remains on shaky footing, requiring robust follow-through selling to signal a definitive trend reversal.