The Australian Dollar (AUD) decreased in value against the US Dollar (USD) due to growing US-China trade tensions, falling for the second day in a row. September’s jobs data increased the likelihood of a rate cut to 85%, previously 50% earlier in the week. The US Dollar (USD) also weakened amidst the ongoing government shutdown and speculation about further interest rate cuts.

Tensions rose with US officials criticising China’s plan to limit rare earth exports. Concerns over the Australian economy were influenced by September’s employment report: Employment Change was 14.9K, below the expected 17K. The Unemployment Rate rose to 4.5%, surpassing the predicted 4.3% and climbing to a near four-year high.

The Us Dollar Index And Financial Conditions

The US Dollar Index has lost value for four sessions, trading around 98.20, driven by a government shutdown and expected rate cut. The US Federal Reserve (Fed) is likely to lower interest rates this month. China’s inflation declined by 0.3% year-over-year in September. Australia’s economy noted less restrictive financial conditions, despite recent rate cuts. The Australian Dollar’s value compared to other currencies reflects these trends, being weakest against the Swiss Franc.

The AUD/USD is moving within a descending channel at around 0.6480, indicating a bearish trend. The pair may find support at 0.6440 and resistance at key Exponential Moving Averages (EMA).

The Reserve Bank of Australia’s (RBA) interest rate decisions significantly impact the Australian Dollar. As a resource-rich country, the AUD is affected by its main export, Iron Ore, and the health of its largest trading partner, China. Australia’s inflation, growth rate, and Trade Balance also influence currency value. A positive Trade Balance typically strengthens the AUD, and vice versa when it is negative.

Impact Of Domestic And Global Factors

Given the current market sentiment on October 17, 2025, we see a clear bearish trend for the Australian dollar. The combination of escalating US-China trade tensions and strong expectations for a Reserve Bank of Australia (RBA) rate cut creates significant headwinds. Traders should be cautious about any long positions in the AUD in the coming weeks.

The domestic data is a major concern, with unemployment hitting a four-year high of 4.5% in September. This has pushed the market probability of a November rate cut to 85%, a sharp increase that signals weakening economic fundamentals. We saw a similar dynamic in 2019 when a string of weak employment figures preceded a series of RBA rate cuts, suggesting that the central bank will not hesitate to act.

The situation in China, Australia’s largest trading partner, adds another layer of risk. Recent data showed consumer prices falling, and the threat of restricting rare earth exports could dampen global trade and risk appetite, which traditionally hurts the AUD. This is reflected in the price of iron ore, which has recently fallen below $100 per tonne for the first time since early 2024, directly impacting Australia’s export revenue.

While the US dollar is also facing its own challenges with a government shutdown and expected Federal Reserve rate cuts, the AUD’s weaknesses appear more pronounced. The latest US jobs report, which showed a gain of only 85,000 jobs, explains the Fed’s dovish stance, but the AUD is being weighed down by both domestic and international factors. This makes the AUD/USD pair a story of which currency is weakening faster.

For derivative traders, this environment suggests positioning for further downside in the AUD/USD. Buying put options with strike prices below the 0.6440 support level could be a strategy to capitalize on a potential drop while managing risk. The descending channel pattern and weak momentum indicators support this bearish outlook.

We should also consider that the AUD is currently the weakest against safe-haven currencies like the Swiss Franc. In times of global uncertainty, capital flows towards safety, and the US-China tensions provide a strong catalyst for this. Therefore, traders might find more direct downside exposure by exploring short positions in AUD/CHF or AUD/JPY crosses.

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