Aussie Posts Gains On Dovish Fedspeak. Forecast as of 18.07.2025
Did the Reserve Bank of Australia (RBA) make a mistake by not cutting the cash rate in July? Judging by the cooling labor market, the answer is yes. However, this does not bother AUDUSD bulls. They are taking advantage of the US dollar’s weakness. Let’s discuss this topic and make a trading plan.
The article covers the following subjects:
Major Takeaways
- The Reserve Bank of Australia (RBA) has surprised the market.
- Australia’s labor market is cooling down.
- China is redirecting its exports.
- A breakout of 0.6515 is a buy signal for the AUDUSD pair.
Weekly Fundamental Forecast for Australian Dollar
The TACO trade has facilitated the US stock market’s capitalization growth, reaching $11.5 trillion from April’s lows. Investors acquired risky assets that had declined in value, and the Australian dollar was one of them. While the AUDUSD pair’s performance may not match the S&P 500’s, it manages to post gains.
The US Liberation Day offered nothing but doom and gloom for the Australian dollar. The S&P 500 almost entered a bear market, risk appetite diminished rapidly, and fear dominated the markets. The 145% tariffs against China were seen as a significant challenge to Australia’s primary trading partner. As a result, the AUDUSD pair plummeted to a five-year low.
Chinese GDP
Source: Bloomberg.
However, Washington and Beijing quickly concluded a truce. China’s success in redirecting exports from the US to other regions allowed Chinese GDP to grow by an impressive 5.2% in the second quarter. Shipments to Southeast Asia rose by 13%, to Africa by 22%, to Latin America by 7.2%, and to Europe by 6%, offsetting the 10.9% decline in exports to the US.
Traders employed a buy-the-dip strategy in the AUDUSD pair during periods of negative news. First, the July meeting of the Reserve Bank preceded this decision. In advance of this meeting, 27 out of 32 Bloomberg experts predicted a cash rate cut from 3.85% to 3.6%. However, the minority of experts was right. Despite Michele Bullock’s assertion that maintaining the key rate was a matter of timing rather than direction, the Australian dollar surged in response to the RBA’s unexpected announcement.
Australia’s Unemployment, CPI, and Wages
Source: Bloomberg.
In June, Australia’s cooling labor market prompted Capital Economics to label the Reserve Bank’s recent decision as a political misstep. The unemployment rate increased from 4.1% to 4.3%, while employment grew by a modest 2,000, which falls short of the expected 20,000 increase. The derivatives market is confident that the key rate will be lowered in August and that there will be two acts of monetary expansion before the end of the year, with a more than 33% probability of a third cut.
Meanwhile, the prevailing market narrative suggests that Donald Trump’s economic policies are aimed at weakening the US dollar. It enhances the competitiveness of US manufacturers, contributes to the increased earnings of S&P 500 companies, and plays a crucial role in maintaining a balanced foreign trade. Conventional methods, such as lowering the federal funds rate or QE, are not currently available to the US administration. As a result, it undermines confidence in the Fed by exerting political pressure on Jerome Powell.
Weekly AUDUSD Trading Plan
The erosion of confidence in the US dollar serves as a robust basis for buying the AUDUSD pair. If the price settles above the resistance level of 0.6515, long trades can be considered.
This forecast is based on the analysis of fundamental factors, including official statements from financial institutions and regulators, various geopolitical and economic developments, and statistical data. Historical market data are also considered.
Price chart of AUDUSD in real time mode
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