AUD/USD remains stable following the robust employment report from Australia, which has recalibrated interest-rate expectations. The prevailing sentiment in the markets indicates a significant shift away from the expectation of an RBA cut this year. This shift is not attributed to a hawkish stance from policymakers, but rather to the current data, which does not provide sufficient justification for easing measures. The absence of significant domestic releases this week means that the Australian dollar’s trajectory will be influenced by developments in the US, particularly as agencies start to address the backlog of postponed reports resulting from the government shutdown. Australia’s robust employment report dampened the already subdued expectations for an RBA cut this year. The data suggests that an increase may be the forthcoming action, although the RBA will require time to ready the market for this shift. Nevertheless, the evidence is accumulating: inflation continues to be high, employment figures are strong, and the third quarter saw home loans reach an unprecedented level — especially among investors. At this point, I believe the likelihood of an increase is low — however, forthcoming data must align accordingly. The likelihood of a 25bp reduction in December has decreased to 8% based on the RBA cash rate futures curve; however, the projections still support a solitary cut by mid-2026, consistent with the RBA’s most recent forecasts.
Reports are expected to provide limited insights, as the primary issues are rooted in the data itself. The wage prices are not expected to significantly influence the AUD/USD trading landscape, resulting in a lack of prominent domestic data for Australia to concentrate on this week. This situation underscores the significance of US data, contingent upon its availability. A more detailed timeline on US data will be provided separately; however, agencies are set to commence backfilling the gaps created by the shutdown. It may require several weeks for the data to stabilize, and one should anticipate potential errors or revisions during this period. Given the apprehensions surrounding a potential softening in US growth, the Philadelphia Fed index warrants careful scrutiny. In September, it experienced its most rapid contraction in six months, raising concerns that any additional decline could heighten anxieties — particularly with the index projected to recover to 8.6 from –12.8 previously. According to the University of Michigan survey, consumer sentiment has experienced a decline for three consecutive months, while inflation expectations have seen a decrease for four months in a row. A disappointing report — especially when paired with another lackluster Philadelphia Fed outcome — may reignite expectations for a Fed rate cut in December.
Recent commentary has significantly reduced market-implied odds of a December cut to approximately 40%, down from about 65% just a few weeks prior. The potential for new insights from the FOMC minutes is questionable, especially since Jerome Powell emphasized during the post-meeting press conference that another rate cut is not guaranteed. However, he did highlight “strongly differing views” among committee members, so the minutes may reveal how many opposed the 25bp cut and provide a clearer understanding of the level of unity among the voting members. AUD/USD exhibited a narrow 15-pip range from open to close between Tuesday and Friday, indicating a lack of clear direction. Nevertheless, it concluded the week with a 0.7% increase, driven by Monday’s rally. AUD/JPY concluded at a one-year peak, driven by a depreciating yen, as this crucial risk indicator wrapped up the week above the 100 mark. AUD/NZD formed a shooting star near 1.16 on Thursday and continued to decline on Friday, indicating a potential pullback. The weekly chart has additionally established a shooting star, underscoring the potential for a more significant retracement. EUR/AUD experienced a slight bearish inside week, leading me to adjust my outlook to neutral following multiple false breaks in either direction. GBP/AUD reached my downside target at 2.00, but the sharp bullish reversal on Thursday diminishes the chances of a decline towards 1.9794, placing this pair on the backburner for the time being. Implied volatility for the Australian dollar increased last week across the 1-week and 1-month timeframes.
Volatility has indeed increased, as evidenced by the significant fluctuations observed on Thursday and Friday, even though AUD/USD ended up showing no directional movement. I do not foresee any significant breakouts this week due to the absence of domestic data and the gradual release of US information. Nevertheless, risk reversals indicate that any potential decline in the Aussie could be constrained. My outlook thus continues to favor a potential movement towards 0.66, with pullbacks expected to present appealing opportunities for purchasers. Despite the dual nature of volatility observed last week, my preference remains for buying dips on the AUD/USD, anticipating a movement towards 66c. Prices continue to hold well above the 200-day EMA, even in light of Friday’s slight selloff, and the spinning top doji did not approach the 200-day EMA at all. AUD/USD consistently maintained its position above the 100-day EMA throughout the entirety of last week. Additionally, risk reversals remain favorable for the Aussie at these levels, suggesting that any declines may be constrained. Bulls may look for opportunities to buy on dips near the 200-day EMA, anticipating a breakout above last week’s high and a potential rise to 66c.