AUD/USD hits three‑week low as weak China data and Middle East tensions weigh

Geopolitics and China data drive fresh weakness

AUD/USD finished lower last week at 0.7148 (-1.37%), retreating from the four‑year high of 0.7277 hit the previous week as the United States (US) dollar posted broad‑based gains.

US dollar strength was driven by stronger‑than‑expected US economic data and higher energy prices, which fuelled concerns that inflation will remain sticky and increased the likelihood of a Federal Reserve (Fed) rate hike.

This resulted in a sharp rise in US Treasury yields, with the 10‑year note climbing 24 basis points (bp) for the week to 4.59%, its highest level in a year. The yield is now perched on the edge of breaking out of a multi‑month contracting triangle, a move that could open the door to a retest of the 5.02% high from October 2023 and provide further support for the dollar.

At the same time, falling prices for key Australian commodities, particularly copper and gold, along with more cautious risk sentiment ahead of the weekend, added to the pressure on the Aussie.

Those headwinds intensified over the weekend and into Monday. Fresh drone strikes on the United Arab Emirates (UAE) and Saudi Arabia, including a direct hit on an external generator at the Barakah nuclear power plant, saw the safe‑haven US dollar catch a bid.

At the same time, China released very weak April activity data, with retail sales slumping to a record low of just 0.2% year‑on‑year (YoY) ex‑Covid, new home prices contracting for the 34th straight month, and broad‑based weakness across the economy exacerbated by the oil shock. The combination sent AUD/USD to a near three‑week low of 0.7116.

Focus turns to labour data and global drivers

Looking ahead, AUD/USD will face the usual blend of domestic and global influences. On the domestic front, Thursday’s April labour force report will take centre stage. Offshore, attention will focus on the Federal Open Market Committee (FOMC) meeting minutes, flash purchasing managers’ indices (PMIs), and further developments out of the Middle East, where escalation or signs of diplomatic progress could quickly shift risk sentiment – and the Aussie’s fortunes.

Labour force

Date: Thursday, 21 May at 11.30am AEST

Last month’s March print showed a softer‑than‑expected gain of just 17,900 jobs, missing the roughly 20,000 consensus forecast, even after an upwardly revised 49,600 increase in February. The unemployment rate held steady at 4.3%, while the participation rate eased slightly to 66.8%.

The April update is expected to show around 20,000 jobs added, with the unemployment rate remaining at 4.3%. A resilient outcome in line with expectations would support the case for further Reserve Bank of Australia (RBA) rate hikes in the months ahead. A noticeably softer result, however, especially one that sees the jobless rate edge toward 4.5%, would see the rates market dial back expectations for additional tightening later this year and weigh on AUD/USD.

The Australian interest rates market is currently pricing in around 6.5 bp of tightening for the June RBA meeting, with a cumulative 44 bp of hikes expected for the remainder of 2026.

Australian unemployment rate chart

AUD/USD technical analysis

The Aussie’s rally from its late‑March low of 0.6831 extended in early May, reaching a fresh four‑year high of 0.7277, a gain of around 6.5% from those lows.

On Friday of last week, we noted on X here, that the rally in the Aussie was starting to look fatigued. We highlighted that a sustained break below short‑term support at 0.7200 - 0.7190 would warn of a deeper pullback toward 0.7100.

That scenario is now in play. From here, a decisive break below 0.7100 would confirm the momentum shift and open the door for a deeper correction toward the psychologically important 0.7000 level.

That said, if AUD/USD can successfully defend the key support zone at 0.7100, the uptrend remains intact and the door stays open for further upside exploration towards 0.7400.

AUD/USD daily candlestick chart

• _{Source: TradingView. The figures stated are as of 18 May 2026 Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}