Australian Dollar Weakens as China Holds Rates, USD Strengthens on Geopolitical Optimism

The Australian Dollar (AUD) extended its losing streak against the US Dollar (USD) on Wednesday, weighed down by China’s monetary policy decision and renewed strength in the greenback. The AUD/USD pair is trading around 0.6450, approaching two-month lows, as traders digest developments from both Asia and the US.

China Keeps Loan Prime Rates Steady

The People’s Bank of China (PBoC) kept its one- and five-year Loan Prime Rates (LPRs) unchanged at 3.00% and 3.50% respectively. This decision disappointed markets expecting stronger stimulus to support growth, putting pressure on China-sensitive currencies like the Australian Dollar.

Geopolitics Support the US Dollar

The US Dollar gained further momentum as geopolitical news favored risk appetite. Hopes of progress in Ukraine-Russia peace talks added to optimism, after White House officials confirmed that preparations are underway for a potential meeting between Presidents Vladimir Putin and Volodymyr Zelenskyy.

Meanwhile, US President Donald Trump assured that no American troops would be deployed to enforce the deal, keeping the focus on diplomacy. The US Dollar Index (DXY) climbed for the third straight day, trading near 98.30 ahead of the Jackson Hole Symposium, where Fed Chair Jerome Powell is expected to provide key policy guidance.

Economic Factors in Focus

Recent US data has supported expectations of a September Fed rate cut, with CME’s FedWatch tool showing an 86.5% probability of a 25-basis-point cut. At the same time, the Trump administration announced expanded tariffs on steel, aluminum, and semiconductors, adding to trade market volatility.

In Australia, Westpac Consumer Confidence rose sharply by 5.7% in August, reaching its highest level since early 2022. This follows multiple rate cuts from the Reserve Bank of Australia (RBA), including a 25 bps cut on Tuesday, which lowered the Official Cash Rate to 3.6%. Despite the improvement in sentiment, analysts believe further easing may be necessary to sustain momentum.

Technical Outlook for AUD/USD

The AUD/USD pair is under bearish pressure, remaining below the 9-day Exponential Moving Average (EMA) while the 14-day RSI stays under the 50 mark.

Immediate support: 0.6419 (two-month low)
Next support: 0.6372 (three-month low)
Key resistance: 0.6486 (9-day EMA), followed by 0.6497 (50-day EMA)

A break below 0.6419 could open the door to further declines, while a recovery above 0.6497 may allow the pair to target 0.6568 (monthly high) and 0.6625 (nine-month high).

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Yasher Rizwan