Australian Dollar pares gains following the remarks from RBA Governor Bullock

• The Australian Dollar marks a fresh nine-month high of 0.6859 level following RBA’s policy decision.
• The Reserve Bank of Australia decided to maintain its Official Cash Rate at 4.35% in September.
• The US Dollar faces challenges as Fed policymakers project additional rate cuts in 2024.

The Australian Dollar (AUD) appreciated against the US Dollar (USD) as the Reserve Bank of Australia (RBA) decided to maintain the Official Cash Rate (OCR) at 4.35%, citing strong labor market conditions and persistent inflationary pressures. The RBA Board remains committed to returning inflation to its target, as it continues to stay above the target level and proves to be persistent. The Board is keeping all options on the table.

RBA Governor Michele Bullock stated during the press conference following the policy decision that recent data has not significantly influenced the policy outlook. Bullock indicated that rates will remain on hold for the time being and that a rate hike was not explicitly considered during the meeting.

The ANZ-Roy Morgan Australia Consumer Confidence Index rose by 0.8 points to 84.9 this week. Despite this increase, Consumer Confidence has now remained below the 85.0 mark for 86 consecutive weeks. On a year-over-year basis, the index is up by 8.5 points from 76.4.

The US Dollar (USD) could face challenges as Federal Reserve (Fed) officials forecast further rate cuts totaling 50 basis points (bps) in 2024, following an aggressive 50 bps cut last week. Supporting this outlook, Minneapolis Fed President Neel Kashkari stated on Monday that he expects and supports additional rate cuts in the coming year, per Reuters.

Daily Digest Market Movers: Australian Dollar maintains position due to hawkish mood surrounding the RBA

• According to the CME FedWatch Tool, markets are pricing in a 50% chance of 75 basis points to be deducted by the Fed to a range of 4.0-4.25% by the end of this year.
• The S&P Global Composite Purchasing Managers Index (PMI) grew at a slower rate in September, registering 54.4 compared to 54.6 in August. The Manufacturing PMI unexpectedly dropped to 47.0, indicating contraction, while the Services PMI expanded more than anticipated, reaching 55.4.
• Chicago Fed President Austan Goolsbee noted, “Many more rate cuts are likely needed over the next year, rates need to come down significantly.” Additionally, Atlanta Fed President Raphael Bostic said Monday that the US economy is close to normal rates of inflation and unemployment and the central bank needs monetary policy to “normalize” as well, per Reuters.
• The People’s Bank of China (PBoC) injected CNY 74.5 billion in liquidity into the banking system via a 14-day reverse repo, with the rate lowered to 1.85% from 1.95%. Additionally, the Chinese central bank also injected CNY 160.1 billion in liquidity via a 7-day reverse repo, with the rate unchanged at 1.7%.
• Australian Treasurer Jim Chalmers is working to establish a new monetary policy board at the Reserve Bank of Australia, but he needs the support of the Greens Party to move forward. The Greens have stated they will only back changes at the RBA if there is a commitment to lowering interest rates.
• Australia’s Judo Bank Composite PMI declined to 49.8 in September from 51.7 in August, indicating a contraction in business activity as slower growth in the services sector was unable to counterbalance a deeper slump in manufacturing output. The Services PMI fell to 50.6 in September from 52.5 previously, while the Manufacturing PMI decreased to 46.7 from 48.5 in August.
• Commonwealth Bank (CBA) has adjusted its expectation for the first Reserve Bank of Australia rate cut of 25 basis points, moving it from November 2024 to December 2024. This shift follows a robust employment rate and a continued “hawkish” outlook from the central bank, according to Yahoo Finance.
• Australian Employment Change came in at 47.5K in August, down from 48.9K (revised from 58.2K) in July, but well above the consensus forecast of 25.0K. The Unemployment Rate remained steady at 4.2% in August, in line with both expectations and the previous month’s figure, according to data released by the Australian Bureau of Statistics (ABS).
• Reserve Bank of Australia (RBA) Governor Michele Bullock emphasized that it is premature to consider rate cuts given the persistently high inflation. Additionally, RBA Assistant Governor Sarah Hunter noted that while the labor market remains tight, wage growth seems to have peaked and is expected to slow further.

Technical Analysis: Australian Dollar hovers around a nine-month high near 0.6840

The AUD/USD pair trades near 0.6840 on Tuesday. Technical analysis of the daily chart indicates that the pair is moving upward within the ascending channel pattern, suggesting a bullish bias. Additionally, the 14-day Relative Strength Index (RSI) is positioned above 50, confirming the ongoing bullish trend.

The AUD/USD pair is currently testing the nine-month high of 0.6839, last reached on September 19. A breakout above this level could drive the pair toward the upper boundary of the ascending channel, around the 0.6910 mark.

On the downside, the AUD/USD pair could find support at the lower boundary of the ascending channel, which coincides with the nine-day Exponential Moving Average (EMA) at 0.6788. The next significant support is at the psychological level of 0.6700. A break below this level could push the pair further down toward its six-week low of 0.6622.

AUD/USD: Daily Chart