The Australian dollar began the trading week with a gap, closing at 0.6516 on Friday and opening at 0.6541 on Monday. However, sellers of AUD/USD were unable to close the gap, and during subsequent trading, the pair updated its two-week high, testing the resistance level at 0.6560, which corresponds to the lower boundary of the Kumo cloud on the D1 timeframe (and simultaneously the upper line of the Bollinger Bands on H4).
This price action is attributed to two reasons. First, AUD/USD traders reacted positively to the preliminary talks between the U.S. and China. Second, support for the Australian dollar came from the Governor of the Reserve Bank of Australia, Michele Bullock, who expressed a relatively hawkish rhetoric. Thanks to these fundamental factors, buyers of AUD/USD were able to break out of the price range of 0.6480 – 0.6530, where the pair had been trading for almost two weeks.
As is well known, China is Australia's largest trading partner, so the Aussie reacted positively to the news that the U.S. and China had reached a "framework agreement" on a significant trade deal. It became known that the parties had reached a preliminary consensus on a number of key issues, including the continuation of the trade truce and export restrictions.
In an interview with the American television network CBS, U.S. Treasury Secretary Scott Bessent stated that the United States is "virtually certain" to remove the proposed additional 100% tariffs on Chinese goods from the agenda. Meanwhile, according to Bessent, Beijing will postpone tightening controls on the export of rare earth metals for a year and will resume importing soybeans from the U.S. in "significant volumes."
It is important to note that China, in its communique, refrained from any specifics, stating only that the parties held a constructive meeting and reached a "basic consensus on measures to address each side's concerns." Specific details of the agreement, according to the Chinese, will be agreed upon in further discussions.
In other words, Beijing has (for now) not officially confirmed the details of the framework agreement that Scott Bessent had mentioned. However, it has not denied his remarks either, which is also significant under the current circumstances.
The mere fact of reaching a framework agreement allowed buyers of AUD/USD to test the 0.6560 resistance level. However, the ongoing uncertainty over the postponement of tightened controls on rare-earth metal exports from China prevented the bulls from breaking through this price barrier.
Additional support for the Australian dollar came from Reserve Bank of Australia Governor Michele Bullock, who indicated that the RBA's rate "may not decrease as much as that of other central banks." She expressed optimism about the labor market data published last week, noting that the central bank is "in a good position concerning employment and inflation."
It is worth recalling that the unemployment rate in Australia unexpectedly rose to 4.5% in September, marking the second consecutive month of increases. This represents a multi-year low, the highest level since November 2021. Other components also showed red-zone results: the number of employed increased by 14,000 (while the forecast was 20,000), and the labor force participation rate rose to 67.0%, whereas most analysts had expected this indicator to remain at the August level of 68.8%.
The only "spoonful of honey in the barrel of tar" is the increase in total employment. This component of the report rose by 8,700 after a sharp 40,000 decline the previous month.
Commenting on this release, Bullock mentioned that unemployment remains relatively low and that it may return "to previous levels" next month (that is, in the range of 4.1-4.3%). Additionally, she stated that there is "some tension" in the labor market.
Following Bullock's remarks, the likelihood of a rate cut by the RBA at their November meeting fell to 20-25%. However, after the publication of the latest inflation growth data in Australia (the monthly consumer price index rose sharply to 3.0% — the strongest monthly CPI increase since July 2024), the probability of an RBA rate cut in November did not exceed the 50% mark. Therefore, the Reserve Bank's head merely confirmed the assumptions of many market participants.
Thus, the upward dynamics of the AUD/USD pair are well-founded and justified. However, the buyers' inability to overcome the resistance level of 0.6550 (the lower boundary of the Kumo cloud on D1 and simultaneously the upper line of the Bollinger Bands on H4) indicates that longs carry risks. At least until the AUD/USD bulls establish themselves above this level, opening the way to the next price targets at 0.6600 (the upper boundary of the Kumo cloud on D1) and potentially 0.6650 (the upper line of the Bollinger Bands on the same timeframe).
