Why Is AUD Struggling? Market Caught Between RBA Hawkishness and Risk Sentiment Headwinds

The Australian Dollar continues to face persistent selling pressure against the USD, with AUD/USD hovering near 0.6630 and down approximately 0.10% during early Asian trading. The weakness has stretched across four consecutive sessions, reflecting a confluence of bearish catalysts that are keeping the pair under pressure.

Multiple Headwinds Weigh on Risk Sentiment

The deterioration in Chinese economic indicators announced Monday has reignited concerns surrounding the second-largest global economy, triggering a broader softening in risk appetite across financial markets. Coupled with softer global equity sentiment and last Thursday’s lackluster Australian employment data, these factors have created an unfavorable environment for the AUD, which typically performs better when risk appetite is robust.

Policy Divergence Provides Support Floor

Despite the downward pressure, the AUD/USD pair has avoided deeper losses, largely due to contrasting central bank policy trajectories. Reserve Bank of Australia Governor Michele Bullock signaled last week that interest rate reductions may not be warranted at this juncture, with Board members even discussing potential rate hike scenarios should economic conditions deteriorate further. This hawkish messaging provides a meaningful counterbalance to AUD weakness.

USD Weakness Offers Additional Cushion

The broader USD selloff amplifies support for the antipodean currency. The USD Index trades near October lows amid growing consensus that the Federal Reserve will pursue additional interest rate cuts in the coming months. Speculation around a dovish successor to Fed Chair Jerome Powell has further weakened the Greenback’s position.

Waiting for NFP to Drive Direction

Market participants appear cautious ahead of the delayed October Nonfarm Payrolls report, with many reluctant to establish aggressive positions until this critical employment data materializes. This hesitation suggests the pair’s downside may face containment, though confirmation of a sustained reversal will require more decisive follow-through selling in coming sessions.