AUD/USD Price Analysis – Oct 03, 2024

Daily Price Outlook

During the European trading session, the AUD/USD currency pair has extended its downward trend, currently hovering around 0.6843 and hitting an intra-day low of 0.6841.

This decline is largely driven by the bullish performance of the US Dollar (USD), influenced by key economic data released on Thursday.

Moreover, a risk-off sentiment in the market has added to the downward pressure on the AUD/USD pair, as rising geopolitical tensions in the Middle East have shaken investor confidence.

According to the Israeli Broadcasting Authority (IBA), Israel's security cabinet has decided to take decisive action in response to a recent Iranian attack. On Tuesday night, Iran launched over 200 ballistic missiles and drones targeting Israel, escalating tensions in the region.

Despite these challenges, the downside risk for the AUD could be limited due to the hawkish stance of the Reserve Bank of Australia (RBA).

Recent data showed stronger-than-expected retail sales growth for August, reducing the chances of an early rate cut by the RBA.

Besides this, the AUD is receiving some support from stimulus measures implemented by China, Australia’s largest trading partner, which have helped boost commodity prices.

Impact of Strong US Labor Market Data on AUD/USD Pair

On the US front, the broad-based US dollar is gaining strength as recent economic data highlights a resilient labor market. This has led to tempered expectations for aggressive interest rate cuts by the Federal Reserve (Fed).

According to the CME FedWatch Tool, there’s a 65.4% chance of a 25 basis point rate cut in November, while the likelihood of a 50 basis point cut is at 34.6%, down from 57.4% just a week ago.

Tom Barkin, President of the Federal Reserve Bank of Richmond, emphasized that the fight against inflation isn’t over, noting that while a 50 basis point cut in September was justified, risks still exist.

Recent reports show positive employment trends, with the ADP Employment Change report revealing an increase of 143,000 jobs in September, exceeding the forecast of 120,000. Annual pay also rose by 4.7%.

However, the AiG Industry Index improved slightly but still indicates contraction for the 29th month in a row. The AiG Manufacturing PMI continued to decline, reaching its lowest level since the series began.

Meanwhile, Fed Chairman Jerome Powell stated that the central bank is not rushing to cut rates further, indicating that any future rate changes are likely to be more modest.

Therefore, the strengthening US dollar, driven by positive labor market data and tempered rate cut expectations, is likely to put further downward pressure on the AUD/USD pair, as investors may favor the USD over the Australian dollar in the current environment.

Positive Economic Indicators Support Australian Dollar Amid Global Uncertainties

Moreover, the downside risk for the Australian dollar (AUD) could be limited due to the hawkish outlook of the Reserve Bank of Australia (RBA). Recent data revealed stronger-than-expected retail sales growth of 0.7% month-over-month in August, surpassing forecasts of a 0.4% increase.

This growth has lowered the chances of an early rate cut by the RBA, with markets almost fully discounting a rate cut in November. In the meantime, stimulus measures from China, Australia’s largest trading partner, have boosted commodity prices, providing further support to the AUD.

In terms of trade balance, Australia recorded a surplus of 5,644 million in August, exceeding market expectations of 5,500 million and slightly higher than July’s surplus of 5,636 million.

However, both exports and imports saw a decline of 0.2% month-over-month during this period. The Judo Bank Services Purchasing Managers' Index (PMI) stood at 50.5 in September, down from 52.5 in August, indicating continued growth in services activity but at a slower pace.

Meanwhile, the Composite PMI dipped slightly to 49.6 in September from 49.8 the previous month, suggesting a slight contraction in overall economic activity.

Therefore, the hawkish stance of the Reserve Bank of Australia, supported by strong retail sales growth and a positive trade balance, bolster the AUD against the USD, mitigating some downward pressure on the AUD/USD pair amid global uncertainties.

AUD/USD - Technical Analysis

The Australian Dollar (AUD) is losing ground against the U.S. Dollar (USD), currently trading at $0.68622, down 0.33% for the session.

The bearish pressure comes amid heightened risk aversion, as investors digest mixed U.S. economic data and concerns over China’s economic slowdown, which is weighing on commodity-linked currencies like the AUD.

The 4-hour chart shows that the AUD/USD pair is struggling to hold above its pivot point at $0.68873, indicating sellers are dominating the market. Immediate support is found at $0.68423, with subsequent support levels at $0.68211 and $0.67994.

The technical indicators reinforce a cautious outlook. The 50-day Exponential Moving Average (EMA) hovers at $0.69022, well above the current price, underscoring the bearish momentum.

Meanwhile, the Relative Strength Index (RSI) is at 37, approaching oversold territory but not yet signaling a reversal. Traders should remain vigilant as a break below $0.68423 could see the AUD/USD pair testing deeper support levels.

Immediate resistance stands at $0.69160, and for any significant recovery, the pair would need to surpass this barrier, targeting $0.69403 and $0.69622 as next upside objectives.

The short-term outlook remains bearish, particularly if the pair continues to trade below its 50 EMA, which could open doors for further declines.

Conclusion: Traders might consider entering short positions below $0.6878, aiming for a take profit around $0.68426, while maintaining a stop-loss at $0.69051 to manage risk effectively.

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