Turning Point or Temporary Reprieve for Australian Dollar?
AUD/USD staged a recovery of sorts last week, rising towards 0.6980 by Friday's close. Improving market sentiment was driven by easing geopolitical concerns after President Trump ruled out an attack on Iran before the US midterm elections, alongside strong auction demand for longer-dated US Treasuries and supportive comments from ECB President Lagarde. The week ahead could prove pivotal. US Sep CPI is the key event, followed by comments from Fed Chair Warsh (Fri). RBA Minutes (Tue) and Australian labour market data (Thu) are secondary but still important.
Turning Point or Temporary Reprieve for Australian Dollar?
AUD/USD staged a recovery of sorts last week, rising towards 0.6980 by Friday's close. Improving market sentiment was driven by easing geopolitical concerns after President Trump ruled out an attack on Iran before the US midterm elections, alongside strong auction demand for longer-dated US Treasuries and supportive comments from ECB President Lagarde.
Together, these developments helped calm markets, reduce expectations for further aggressive US interest rate rises and stabilise long-term bond yields, providing support for the Australian dollar. After several weeks of sustained selling pressure, AUD/USD has begun to stabilise and is now testing the top of its recent downtrend.
The week ahead could prove pivotal. US Sep CPI is the key event, followed by comments from Fed Chair Warsh (Fri). RBA Minutes (Tue) and Australian labour market data (Thu) are secondary but still important.
Markets Find Their Footing
Oil markets remained volatile last week as developments in the Middle East drove sharp swings in sentiment. Brent crude briefly rose to just under US$106/bbl amid escalating tensions, but eased after President Trump ruled out military action against Iran before the November midterm elections.
At the same time, the FOMC Sep meeting minutes continued to signal that further rate hikes remain likely. Outside a few localised hotspots - tariffed goods and energy - the accumulating inflation evidence is relatively contained. However, the tone from Fed officials remains notably hawkish. Fed President Musalem and Fed Governor Waller both noted that more policy firming will be required to return inflation to target in a timely manner. Whether that is ultimately delivered remains to be seen.
US bond yields initially pushed to multi-decade highs early in the week before retreating on strong Treasury auction demand results and easing geopolitical concerns, helping improve broader market sentiment.
Meanwhile, following a sharp sell-off in European bond markets amid mounting political and fiscal concerns, ECB President Lagarde helped stabilise sentiment by stating the ECB had the tools to counter "unwarranted market moves". Her comments supported both the euro and Australian dollar into week's end.
US 10-year and 30-year Treasury auctions were also well received following Lagarde's comments and Trump's softer stance on Iran, after yields had pushed to multi-decade highs earlier in the week.
The weekend brought another dose of geopolitical news keeping energy markets on their toes. King Khalid International Airport in Riyadh was attacked multiple times, Trump announced that an immediate energy ceasefire has been reached between Ukraine and Russia and last but not least, Russian diesel is set to return to global markets with a deal reached for 4mn tonnes to be exported starting in November.
Consumer Confidence Remains Under Pressure
Australian consumer confidence weakened sharply in October, with households feeling the combined impact of rising living costs, higher fuel prices and another RBA rate hike. Sentiment remains near recession-like lows, highlighting the ongoing pressure on household budgets.
The latest RBA rate increase appears to have significantly dented confidence, with consumers increasingly expecting further rate rises over the year ahead. Views on household finances and spending also deteriorated, reflecting concerns that cost-of-living pressures will persist.
While housing sentiment improved modestly, overall consumer mood remains deeply pessimistic. With inflation pressures still elevated, Westpac continues to expect the RBA to deliver another rate hike at its November meeting.
AUD Crosses in Focus
AUD/NZD has climbed more than one cent since the start of October and was trading near 1.2450 on Monday afternoon, just shy of recent highs (1.2491).
AUD/JPY has been a casualty of the recent sharp run up in global yields, with JPY showing surprising resilience - this dragged AUD/JPY under JPY110 in late Sep and early Oct. The cross has however stabilised, at 110.50 in the new week.
AUD/EUR has long struggled to find the same bullish vigour as other AUD-crosses in 2026, but its finally showing more consistent upside lately, the cross reaching its highest level since late 2024 last week (0.6242). The sharp sell-off in European peripheral bond spreads has been instrumental to the renewed push higher in this cross. The pair begins the week just below that high at 0.6229.
The Week Ahead
The week ahead will be crucial in determining whether the Australian dollar's recent recovery can gain further traction.
The key event is US September CPI (Wed), followed by comments from Fed Chair Warsh (Fri). A benign inflation result would underscore the recent moderation seen in payrolls, wages growth and core inflation, potentially helping AUD/USD's recovery. In contrast, an upside inflation surprise could quickly see the pair retreat back towards recent lows.
Locally, the RBA minutes (Tue) and September employment report (Thu) will also be closely watched. Australia's labour market remains relatively resilient, but signs of easing are emerging. Westpac expects employment to rise by around 20k in September and unemployment rate to hold at 4.6% as workforce participation remains near record highs.
A growing number of Australians are entering the workforce, driven in part by cost-of-living pressures, meaning labour supply is continuing to outpace demand. As a result, unemployment has been gradually drifting higher despite ongoing job creation. For the RBA, the labour market is softening rather than weakening sharply, suggesting any cooling in conditions is likely to remain gradual over the months ahead.
Also on the calendar this week are China's Sep activity data and a steady flow of Fed speakers.
Monday
- Fedspeak; Hammack
- US Columbus Day; bond markets closed.
Tuesday
- RBA Sep Meeting Minutes
- Australia Sep NAB Business Survey
- US Sep NFIB Small Business Survey
- US Big Bank Earnings
- Fedspeak; Waller, Collins, Barkin
Wednesday
- Australia Sep Westpac Leading Index
- China Sep Trade, PPI, CPI
- US Sep CPI, Fed Beige Book
- Fedspeak; Barkin, Bowman
Thursday
- Australia Sep Labour Data
- US Sep Retail Sales, PPI, Oct Empire Manf. Survey
- Fedspeak; Hammack
Friday
- RBNZ Gov. Breman speaks
- Fedspeak; Gov. Warsh
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