AUD/USD climbs amid US-China trade optimism, Fed rate cut expectations

• The Australian Dollar rises slightly against the US Dollar, supported by improving trade sentiment between the US and China.
• Hopes of renewed bilateral dialogue benefit China-linked assets, to which the Australian economy is highly exposed.
• Markets are almost certain that the Federal Reserve will cut interest rates in October.

AUD/USD appreciates by 0.35% on Monday, trading around 0.6520 at the time of writing. The pair benefits from a mild return in risk appetite, fueled by the prospect of easing trade tensions between Washington and Beijing.

Recent comments from US President Donald Trump, saying that high tariffs are "not sustainable," have revived hopes of a potential compromise. The White House leader confirmed that a meeting with Chinese President Xi Jinping remains scheduled in South Korea later this month. These positive signals are being interpreted as a de-escalation in the trade conflict, which had recently been reignited by new reciprocal tariffs.

The improved tone in US-China relations is good news for the Australian economy, which depends heavily on commodity exports to China. However, the latest data from the National Bureau of Statistics (NBS) showed that China's Gross Domestic Product (GDP) grew by 4.8% YoY in the third quarter, down from 5.2% in the previous quarter. On a quarterly basis, growth stood at 1.1%, slightly above expectations.

In the United States, the US Dollar (USD) remains subdued as investors focus on the release of the delayed Consumer Price Index (CPI) report for September, postponed due to the ongoing US government shutdown. This budget deadlock reinforces expectations of a monetary easing by the Federal Reserve (Fed).

According to the CME FedWatch tool, markets have fully priced in a 25-basis-point rate cut in October, with a high chance of another reduction by December. This outlook, combined with improving global trade sentiment, supports the Australian Dollar (AUD) for now, although China's weaker growth momentum could limit its upside potential in the medium term.