Australian Dollar weakens as robust US data, rising US yields overshadow RBA rate hike

AUD/USD falls to around 0.6910 on Thursday at the time of writing, down 0.48% on the day. The Australian Dollar (AUD) loses ground against the US Dollar (USD) despite the Reserve Bank of Australia’s (RBA) decision to raise interest rates this week, as rising US Treasury yields support the Greenback.

The RBA raised its key interest rate by 25 basis points (bps) to 4.6% on Tuesday, marking its fourth 25-bps increase this year. RBA Governor Michele Bullock also left the door open to further monetary tightening as the central bank remains committed to bringing inflation back toward its 2% target.

However, trade data released on Thursday provides a less encouraging signal for the Australian economy. Australia’s Trade Balance surplus narrowed sharply to A$495M from A$1.351B in July. Imports rose 5.8% after falling 2.4% in the previous month, while exports increased 3.7% following a 3.6% contraction.

The downside pressure on AUD/USD mainly comes from a firm US Dollar, supported by the sharp rise in US Treasury yields. The benchmark 10-year US Treasury yield trades around 5.24% at the time of press after reaching 5.34%, its highest level since 2002.

The latest US data also reinforces the resilience of the economy. Initial Jobless Claims fell to 197K in the week ending September 26 from 198K previously and below the 201K market consensus. Continuing Jobless Claims also declined by 11K to 1.701M.

These figures add to Wednesday’s Automatic Data Processing (ADP) report, which showed that the US private sector added 90K jobs in September, above expectations of 70K and accelerating from the 36K increase recorded in August. United States (US) Gross Domestic Product (GDP) growth for the second quarter was also revised higher to an annualized rate of 2.2% from 1.5% previously.

Manufacturing activity also remains robust. The Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) edged lower to 54.5 in September from 54.6 in August, missing expectations of 55. However, the report’s underlying components remained solid, with the Employment Index rising to 52.7 and the New Orders Index climbing to 55.3. The Prices Paid Index also jumped to 77.9 from 71.1 previously, pointing to persistent price pressures.

The combination of resilient economic activity and persistent inflationary pressures leaves the Federal Reserve (Fed) with room to maintain a restrictive monetary policy stance. Expectations of further tightening have nevertheless eased following Wednesday’s softer core Personal Consumption Expenditures (PCE) inflation data. According to the CME FedWatch tool, markets now see around a 36% chance of an interest-rate hike at the October 27-28 meeting.

Elevated US Treasury yields and expectations that the Fed could maintain restrictive monetary policy for longer are therefore supporting the US Dollar and keeping AUD/USD under pressure despite the RBA’s latest rate hike.

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.6910, extending a bearish near-term tone as the pair holds well beneath both the 100-period simple moving average (SMA) at 0.6988 and the 200-period SMA at 0.7030. The clustering of these longer-term SMAs above price suggests persistent topside pressure, while the Relative Strength Index (14) near 29 hints at oversold conditions that could slow, but not yet reverse, the downside bias.

On the downside, immediate support emerges at 0.6907, ahead of a lower horizontal floor at 0.6883. On the topside, initial resistance aligns with 0.6955, followed by 0.6980 and the 100-period SMA at 0.6988, before the 0.7005 handle and the 200-period SMA at 0.7030 reinforce a broader supply zone. Higher up, 0.7045, 0.7075, 0.7105 and 0.7140 define successive barriers that the pair would need to reclaim to ease the current bearish structure.