AUD/USD Price Analysis – Sep 26, 2024
Daily Price Outlook
During the European trading session, the AUD/USD currency pair halted its downward trend and turned bullish around the 0.6882 level, reaching an intra-day high of 0.6887.
This rebound is largely fueled by contrasting monetary policy outlooks from the Reserve Bank of Australia (RBA) and the Federal Reserve.
Moreover, the Australian Dollar received a notable boost after China, its largest trading partner, announced new stimulus measures aimed at reviving its economy.
Moreover, the RBA's decision to keep the Official Cash Rate steady at 4.35% provided further support for the AUD.
On the other hand, the Federal Open Market Committee (FOMC) recently cut the federal funds rate, which has heightened market expectations for more cuts before the year ends.
This divergence in policy direction has created a favorable environment for the Australian Dollar.
Potential Impacts of China's Stimulus on AUD/USD Pair Amid Domestic Challenges
China is set to inject over CNY 1 trillion into its largest state banks, which are struggling with shrinking margins, declining profits, and rising bad loans. This move marks the first major capital boost since the 2008 global financial crisis.
Meanwhile, the Reserve Bank of Australia's September 2024 Financial Stability Review indicates that the Australian financial system remains resilient, although concerns persist about stress in China’s financial sector and its limited responses to these challenges.
In Australia, a small but growing number of home borrowers are falling behind on payments, with about 2% of owner-occupier borrowers facing serious default risks.
In addition, Australian Treasurer Jim Chalmers plans to visit China this week to strengthen economic ties, highlighting the need to engage with key Chinese officials due to Australia’s vulnerability to the Chinese economy.
JP Morgan recently advised investors to keep an eye on commodities and bond yields, as China's stimulus measures could enhance global growth and reduce recession risks. However, they also warned about the potential for reinflation.
In Australia, the Monthly Consumer Price Index rose by 2.7% year-over-year in August, down from 3.5%, indicating shifting economic conditions.
Therefore, the news of China’s capital injection and stimulus measures could strengthen the AUD/USD pair, as improved economic prospects in China may boost demand for Australian exports. However, concerns over rising default risks in Australia may limit AUD gains.
Impact of Federal Reserve Rate Cuts on AUD/USD Trends
On the US front, Federal Reserve Governor Adriana Kugler expressed strong support for the Fed's recent decision to cut interest rates by half a percentage point. She indicated that if inflation continues to decrease as expected, further rate cuts would be appropriate.
This significant cut lowered the federal funds rate to a range of 4.75% to 5.0%, marking the first rate reduction in over four years.
The market is now pricing in about a 50% chance of an additional 75 basis points cut by the end of the year, potentially bringing the rate down to between 4.0% and 4.25%.
Traders are particularly attentive to the upcoming release of the final US Gross Domestic Product (GDP) Annualized report for the second quarter (Q2), which is set to be announced later in the North American session.
This data will be crucial in shaping expectations about the US economy and could influence future decisions by the Federal Reserve regarding interest rates.
Therefore, the Federal Reserve's interest rate cut and potential for further reductions may weaken the US dollar, potentially boosting the AUD/USD pair. However, the upcoming GDP report could introduce volatility, influencing market sentiment and short-term trading strategies.
AUD/USD - Technical Analysis
The Australian Dollar (AUD/USD) has gained 0.32% on the day, trading around $0.68417, reflecting some positive momentum in an otherwise cautious market.
The pair is currently moving below the pivot point at $0.6860, with the 50-day Exponential Moving Average (EMA) also aligned at this level, acting as a significant technical barrier.
Immediate resistance stands at $0.6907, which, if breached, could open the door for further gains towards $0.6946 and $0.6983, respectively.
On the downside, immediate support lies at $0.6819, with additional supports at $0.6783 and $0.6744. Traders are carefully monitoring the $0.6860 level, as it serves as both a pivot point and a key resistance zone.
A break above this level would likely invalidate the current bearish setup. The Relative Strength Index (RSI) is currently at 46, signaling neutral momentum with a slight tilt towards oversold conditions, which suggests the possibility of a rebound in the near term.
For traders, a sell limit entry at $0.6860 is advised, with a take-profit target at $0.68189, supported by the immediate downside levels. A stop-loss at $0.68879 would help mitigate risk in case of an upward breakout.
Overall, the AUD/USD pair remains vulnerable to downside pressure as long as prices stay below the 50-EMA.
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