Uncertainty Benefits AUD, While Shutdown Hurts USD

Technical Analysis

Summary:

AUD rises amid RBA's hawkish stance, while US policy uncertainty and shutdown fears weaken USD, sustaining AUD's upward trend.

The Australian dollar gained for the third trading session, accelerating its growth to 0.5% on Tuesday after the Reserve Bank of Australia decided to keep its key rate at 3.60%. Analysts widely anticipated the decision, but the official commentary on the decision contained hawkish notes, which played into the hands of the AUD.

The RBA noted that September inflation may be higher than previously expected and pointed to a recovery in economic activity. When the economy does not require emergency support and inflation is likely to pick up, central banks are more inclined to pause and assess the dynamic. In contrast, there are increasing signs in the US that monetary policy needs to be eased.

Taken together, this creates a divergence between Australian and US monetary policy in favour of the Australian dollar.

At the end of last week, AUDUSD found support at the 50-day moving average and reversed to growth at the 200-day average. The pair has been moving upwards within a range since the beginning of the year, from which it only fell during the shock of ‘America’s Liberation Day’ in early April.

The Aussie touched the upper limit of this channel on 17 September, briefly exceeding 0.6700, but the looming US government shutdown halted the strengthening of the USD on the Fed’s cautious comments. This exceptionally short-term and speculative story (a compromise was always found sooner or later) nevertheless undermines long-term confidence in the dollar, preventing it from reversing the downward trend that began at the start of the year.

Source: FxPro

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Gerik

Economic

Market Movement

At 05:07 a.m. ET, Dow E-minis dropped 104 points (0.22%), S&P 500 E-minis fell 11.25 points (0.17%), and Nasdaq 100 E-minis lost 39 points (0.16%). The retreat follows a day of gains in equities, as investor sentiment shifted toward risk aversion amid uncertainty over federal funding and the impact on economic data collection.

Investors are particularly focused on the Labor Department's Job Openings and Labor Turnover Survey (JOLTS) for August and the Conference Board’s consumer confidence index. These readings are crucial for assessing growth and inflation trends that guide the Federal Reserve’s policy decisions. Fed speakers, including Vice Chair Philip Jefferson and regional Fed presidents, are also under scrutiny for insights on the central bank’s approach to interest rates.

Historical Context and Earnings Season

While past shutdowns have generally had temporary effects, the current episode could be more disruptive due to the fragile economic backdrop. The S&P 500, Nasdaq, and Dow are positioned to post gains for a second consecutive quarter, entering the historically favorable fourth quarter. Earnings will begin taking center stage, with Nike reporting after Tuesday’s close, providing an early signal on consumer demand and margins. Notable corporate moves include Wolfspeed surging 49% post-bankruptcy and Firefly Aerospace dropping 10.7% after a testing mishap.

Jack Janasiewicz, lead portfolio strategist at Natixis Investment Managers, noted that while shutdowns are usually temporary, prolonged closures can significantly affect economic data collection, adding uncertainty to markets dependent on timely readings for growth and inflation trends.

With markets entering a seasonally positive period but facing heightened data uncertainty and potential government funding disruptions, investors are weighing risk carefully, balancing optimism from earnings and past gains against the possibility of delayed economic signals and policy ambiguity.

Source: Reuters

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Economic

Commodity

Details of the Ban

The directive prevents the signing of new deals for BHP iron ore, including cargoes already shipped from Australia, with only supplies already landed in China and priced in yuan available for trade. This move follows multiple meetings between the miner and Chinese authorities that failed to resolve pricing disagreements. The decision also extends curbs previously applied to BHP’s Jimblebar blend fines earlier this month, with mills now barred from accepting these shipments at Chinese ports or purchasing them on the yuan-denominated spot market.

China is the world’s largest consumer of iron ore, and BHP is among the three major global suppliers providing the bulk of the country’s steelmaking needs. Analysts suggest that Beijing is increasingly willing to assert leverage over raw material pricing, reflecting both moderating steel demand and an anticipated wave of new supply from Guinea’s Simandou mine. Singapore iron ore futures reacted with a 1.8% gain to $105.05 a ton, while BHP shares dropped as much as 4.8% in London, marking their largest decline since April.

Strategic Goal of CMRG

Established three years ago, CMRG aims to shift negotiating power from global miners such as BHP, Rio Tinto, and Vale toward China’s domestic steel industry. The broader strategy underscores Beijing’s willingness to exert control over commodity markets, similar to past restrictions on Australian commodities and recent rare earth export controls. Steelmakers have begun adjusting production practices to accommodate alternative ores as a response to the curbs.

The ban on new BHP cargoes represents a significant escalation in China’s efforts to influence global iron ore pricing, demonstrating the country’s strategic approach to securing raw materials and controlling costs for its steel industry. This development adds pressure on miners and markets, highlighting the growing complexity of global commodity trade under Chinese policy influence.

Source: Bloomberg

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Glendon

Economic

Forex

Federal Reserve Vice Chair Philip Jefferson said on Monday he expects U.S. economic growth to continue at about a 1.5% pace for the rest of 2025, while warning the job market could face stress without central bank support.

Speaking at a Bank of Finland conference in Helsinki, Jefferson explained his support for the quarter-point interest rate cut at the Fed’s September 16-17 meeting as balancing inflation risks with emerging labor market concerns.

"The labor market is softening, which suggests that, left unsupported, it could experience stress," Jefferson said. He anticipates inflation will begin easing back toward the Fed’s 2% target after this year.

Jefferson highlighted significant uncertainty in his economic outlook, primarily due to the evolving policies of President Donald Trump’s administration and their potential effects on employment and inflation.

While the impact of tariffs on inflation and the broader economy has been less pronounced than some economists predicted, Jefferson expects these effects "will further show in coming months."

Source: Yahoo Finance

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Economic

Stocks

Sustained Momentum in Emerging Markets

Emerging-market stocks continued to rally, with the MSCI benchmark for developing economies rising 0.4% on Tuesday and pushing the cumulative monthly gain to 6.9%. Major contributors included Hong Kong-listed giants Alibaba Group and Tencent Holdings, alongside Taiwan Semiconductor Manufacturing Co., reflecting the concentration of tech-driven capital inflows. The streak marks the longest period of monthly gains in over two decades, underscoring investor confidence in growth-oriented emerging markets.

Asian technology stocks have been particularly buoyant, benefiting from global optimism around artificial intelligence adoption and investment. Analysts note that Chinese tech shares, despite strong gains this year, continue to trade at relatively attractive valuations compared with U.S. counterparts, where stretched multiples have prompted caution. This valuation gap suggests room for further inflows, particularly as global investors remain under-exposed to the region.

Market Considerations and Risks

While emerging-market currencies were largely stable Hungarian forint posting modest gains the market is keeping an eye on geopolitical and policy developments, including the potential U.S. government shutdown. So far, its effect on equity markets has been limited, with investors focusing instead on continued Federal Reserve rate cuts, strong corporate earnings, and the monetization of AI initiatives as the primary drivers of market performance.

Market sentiment varies across regions. Israel’s TA-35 Index reached a record high following the announcement of a 20-point plan between President Trump and Prime Minister Netanyahu to resolve the Gaza conflict. Conversely, Philippine equities extended losses as corruption allegations eroded investor confidence, while the peso weakened amid foreign capital outflows. In the credit markets, Kuwait and Egypt tapped international investors with bond and sukuk offerings, highlighting differentiated funding strategies within emerging markets.

The ongoing rally in emerging-market equities demonstrates the strong influence of Asian technology stocks and AI-related optimism. While geopolitical uncertainties and regional divergences persist, investor focus on structural growth drivers combined with under-valuation in some sectors suggests that the rally may have further room to run, sustaining what has become a historic winning streak.

Source: Bloomberg

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Samantha Luan

Economic

Stocks

Forex

Chinese authorities have green-lit reserve reports from two major lithium producers operating in the mining hub of Yichun, easing concerns around output disruptions at a time when the sector’s excess capacity is under close government scrutiny.Contemporary Amperex Technology Co. Ltd., whose Jianxiawo mine has been halted since last month, has now received the reserve approval, according to people familiar with the matter, who asked not to be named as they aren’t authorized to speak publicly. That brings the site one step closer to a mining permit and to a restart, though there is no guarantee, they said.

Gotion High-Tech Co. Ltd., which has continued to produce through the period, has also won the approval from the Ministry of Natural Resources, it told Bloomberg News on Monday.The two miners were among eight asked by authorities in Yichun, in the southern Chinese province of Jiangxi, to submit reports on reserves by the end of September, following an audit that uncovered administrative shortcomings. The lithium hub has been in the spotlight in recent months as supply concerns led to heightened price volatility for the vital battery metal.

The Jianxiawo mine has been the center of the turmoil, after CATL, the world’s largest manufacturer of EV batteries, said in August that it would suspend operations after failing to extend an expired mining permit. Earlier this month, news that executives were now asking employees to ready the resumption of work triggered a slide in lithium stocks and in the price of the material.Gotion has separately received approval for its mining design and ecological restoration plans at its Yichun site, it said. Its lithium unit is currently allowed to mine at the company’s discretion on production needs, it added.

CATL declined to comment. Yichun’s local government didn’t immediately respond to requests for comment.

Source: Bloomberg Europe

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Economic

Commodity

Oil markets continued to soften for a second session on Tuesday, driven by concerns over a looming oversupply. Brent crude fell toward $67 a barrel after Monday’s 3.1% drop the largest decline in nearly two months. The OPEC+ alliance is scheduled to meet on Sunday, with analysts expecting a modest output increase in November, mirroring the incremental adjustments implemented in October.

Market Dynamics and Investor Behavior

Traders’ focus has shifted from last week’s highs boosted by geopolitical tensions affecting Russian energy infrastructure to concerns over additional supply entering the market. Long positions that were previously hedged are being reassessed, with the sharp Monday decline potentially triggering further selling from trend-following funds. While futures indicate a slight monthly loss, strong Chinese demand for oil storage has provided partial support to prices, mitigating a steeper slide.

Analysts from ING Groep NV, including Warren Patterson, highlight that current market balance sheets point to no immediate need for additional supply. The group expects a significant surplus to emerge in the fourth quarter and project that oversupply conditions could persist into 2026. This expectation reflects OPEC+’s strategy of gradually increasing production while monitoring global demand trends.

Geopolitical Considerations

Although the US and Israel recently announced a 20-point plan aimed at resolving the conflict in Gaza, uncertainties remain due to the absence of direct engagement with Hamas. Geopolitical developments continue to influence short-term oil market sentiment, adding complexity to the assessment of supply-demand dynamics.

Oil markets are navigating a delicate balance between oversupply concerns and geopolitical risks. While OPEC+’s measured output strategy aims to stabilize prices, investor caution and trend-driven trading could continue to create volatility. Brent and other benchmarks are expected to remain sensitive to both production decisions and global political developments in the coming weeks.