• The AUD/USD outlook improves as the RBA is expected to hold rates after hotter inflation data, reducing bets on near-term cuts.
• The US Dollar weakens on expectations of a Fed rate cut and risks of a government shutdown.
• The RBA’s decision on Tuesday and the US political standoff set the stage for heightened volatility ahead.

The AUD/USD outlook improves as the US dollar softens ahead of the potential government shutdown on 1st October. The greenback came under pressure as markets anticipated further easing by the Fed, while political chaos in Washington added to the dollar’s weakness.

In Australia, the currency found support from fading odds of RBA rate cuts. Australian inflation in August came in above expectations, reaching 3.0% year-over-year, which reduces the probability of further easing. Futures markets now price in only a 4% chance of a rate cut in September, while 50% for November. The RBA is likely to maintain the rates unchanged in Tuesday’s meeting, with more focus on Governor Michele Bullock’s guidance on future policy outlook.

The fiscal data also lent support to the sentiment. The Australian budget deficit was 10 billion AUD for the year to June, significantly lower than the Treasury’s forecast, alleviating concerns about fiscal stability. Meanwhile, steady unemployment and solid Q2 growth reinforced the view that the RBA can pause and assess the data ahead.

Across the Pacific, the US backdrop is rapidly shifting as the US Core PCE for August came in at 2.9% year-over-year, while Q2 GDP growth was revised up to 3.8%. However, the markets are still focusing on mounting expectations that the Fed will cut rates in October and December. According to CME FedWatch Too, the probability for the October rate is near 88%.

Adding to further uncertainty, President Trump will meet with congressional leaders to avoid a shutdown, despite having announced 100% levies on pharmaceuticals and 25% on trucks, effective October 1st. The political risk could delay the September NFP data, a key input for the Fed’s policy.
 

Key Events Ahead: RBA, US Jobs

Looking forward, the RBA rate decision on Tuesday is pivotal for the AUD/USD, while US labor market data and political developments are also key to watch.
 

AUD/USD Technical Outlook: Bulls Shy Around 20-MA
 

(Click on image to enlarge)

AUD/USD 4-hour chart
 

The technical outlook has improved slightly as the price came back above the 200-period MA, while the 20-period MA resists further upside. The broken support at 0.6580 could also resist the upside. However, a sustained break above the 20-period MA could gather buying traction and test 0.6600 ahead of 0.6650.

Alternatively, staying below the 20-period MA could reignite the selling. The immediate support appears at the 200-period MA near 0.6550, with the next key level at Friday’s swing low of 0.6520.

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