AUD/USD Price Analysis – Oct 01, 2024
Daily Price Outlook
During the European trading session, the AUD/USD currency pair maintained its upward momentum, trading strongly around the 0.6920 level and reaching an intraday high of 0.6935, driven by strong Retail Sales data.
However, the Australian Bureau of Statistics (ABS) reported a month-over-month increase in consumer spending of 0.7% for August, significantly exceeding market expectations of a 0.4% rise.
This positive development, coupled with the Reserve Bank of Australia's (RBA) hawkish stance on interest rates, has further supported the Australian Dollar.
It should be noted that RBA held its cash rate steady at 4.35% for the seventh consecutive meeting, highlighting the necessity of a restrictive policy to combat inflation.
Moreover, China’s recent stimulus measures have bolstered the demand outlook in Australia’s largest trading partner, driving up commodity prices and further strengthening the commodity-linked Australian Dollar.
Australian Dollar Supported by RBA's Hawkish Stance and China's Stimulus Measures
As we mentioned above the Australian dollar gained traction after the hawkish stance by the Reserve Bank of Australia (RBA) regarding interest rates.
The RBA has held its cash rate steady at 4.35% for the seventh consecutive meeting, emphasizing the need for a restrictive policy to keep inflation in check.
Meanwhile, China’s recent stimulus measures have improved demand from Australia’s largest trading partner, driving up commodity prices and bolstering the Australian Dollar.
However, there are mixed signals emerging from China’s manufacturing sector. The Caixin Manufacturing Purchasing Managers' Index (PMI) fell to 49.3 in September, signaling contraction, while the NBS Manufacturing PMI showed improvement at 49.8, surpassing expectations.
During his recent visit to China, Australian Treasurer Jim Chalmers addressed the country’s economic slowdown, expressing optimism about the new stimulus measures as a positive step forward.
China plans to inject over CNY 1 trillion into its largest state banks to tackle issues like shrinking profit margins and rising bad loans, marking the first major capital infusion since the 2008 financial crisis.
Meanwhile, the RBA reported that Australia’s domestic financial system remains resilient, although concerns linger about stress in China’s financial sector and a small but growing number of Australian borrowers struggling with mortgage payments.
Therefore, the hawkish stance of the RBA and China's stimulus measures support the Australian Dollar, strengthening the AUD/USD pair. However, mixed manufacturing data from China and concerns about domestic borrower defaults may limit significant gains for the AUD.
Impact of Federal Reserve's Rate Cut Stance on AUD/USD Pair
On the US front, recent comments from Federal Reserve Chairman Jerome Powell indicate that the central bank is not in a hurry to implement aggressive rate cuts. He emphasized that any reductions to the benchmark rate will be made gradually over time, reassuring markets that the recent half-point cut should not be interpreted as a signal for more drastic actions in the future.
Current market expectations, reflected in the CME FedWatch Tool, show a 61.8% chance of a 25 basis point rate cut in November. Meanwhile, the likelihood of a larger 50 basis point cut has fallen to 38.2%. This cautious approach underscores the Fed's commitment to carefully navigating the economic landscape, ensuring that any adjustments align with broader economic conditions.
Additionally, St. Louis Federal Reserve President Alberto Musalem emphasized that the Fed should consider implementing gradual interest rate cuts after the significant half-point reduction in September. He acknowledged the possibility of economic weakness and suggested that a quicker pace of cuts might be necessary if conditions deteriorate.
On the data front, the US Core Personal Consumption Expenditures (PCE) Price Index rose by just 0.1% month-over-month in August, falling short of the expected 0.2% increase. This softer inflation reading aligns with the Fed's outlook of easing inflation in the US and reinforces the idea that a more aggressive rate-cutting cycle could be on the horizon.
Therefore, the cautious approach of the Federal Reserve regarding rate cuts, combined with lower-than-expected inflation data, may bolster the US Dollar. This could limit the upward potential of the AUD/USD pair, as the Australian Dollar faces pressure from a stronger USD.
AUD/USD - Technical Analysis
The Australian dollar (AUD) continues to edge higher against the U.S. dollar (USD), maintaining a cautious upward trajectory. As of the latest trading session, the AUD/USD pair is trading at $0.69223, marking a slight 0.15% increase.
This recent climb positions the pair above its pivot point at $0.69069, suggesting a potential for further gains if key resistance levels are breached.
Immediate resistance is observed at $0.69403, followed by additional hurdles at $0.69622 and $0.69823. The 50-day Exponential Moving Average (EMA) is currently situated at $0.69140, serving as a critical support area that underpins the current bullish bias.
A sustained hold above this level could reinforce the bullish outlook, encouraging further buying interest.
The Relative Strength Index (RSI) reads 48, signaling neutral momentum with a slight inclination towards the upside. This neutral reading suggests that the market is not yet overbought or oversold, offering room for additional price movement in either direction.
On the downside, immediate support is identified at $0.68886. Should the price break below this level, it could trigger a deeper correction towards $0.68696 and $0.68478, where buyers might step in.
Given the technical setup, a potential buy entry above $0.69069 appears favorable, targeting $0.69406 while maintaining a stop-loss just below immediate support at $0.68886.
The AUD/USD’s recent resilience hints at a measured bullish sentiment, provided it remains above the 50-EMA.
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