The Australian dollar (AUD) saw an increase against the US dollar (USD) on Wednesday, buoyed by the recent Australian Consumer Price Index (CPI) figures. There’s also been a decrease in expectations regarding interest rate cuts from the Reserve Bank of Australia (RBA), which supports the AUD/USD pair.
The CPI rose by 1.3% sequentially in the third quarter (Q3), a notable uptick from the 0.7% increase in Q2. Analysts had predicted a 1.1% growth in this period. Year-over-year, CPI inflation climbed to 3.2% in Q3, up from 2.1% and surpassing the market expectation of 3.0%.
The trimmed mean CPI, which the RBA often references, increased by 1.0% quarter-on-quarter and by 3.0% year-on-year. Predictions had suggested a 0.8% rise quarter-over-quarter and a 2.7% increase year-on-year for September’s quarter. The monthly CPI in August also showed a year-on-year gain of 3.5%, exceeding the anticipated 3.1%.
RBA Governor Bullock stated that, although the rise in unemployment was unanticipated, the job market seems to still hold some tightness. Investors are now looking closely at the third-quarter inflation data that was made public on Wednesday, as well as the monthly CPI for September to gather more context about potential interest rate movements.
USD remains subdued ahead of Fed policy decision
- The US Dollar Index (DXY), which tracks the dollar against a basket of six major currencies, is currently trading around 98.70, remaining on the weaker side. Traders are anticipating a potential interest rate cut from the Federal Reserve during Wednesday’s meeting.
- There is a strong expectation that the Fed will implement a quarter-point cut at its October meeting, which would lower the benchmark rate to between 3.75% and 4.00%. The markets are forecasting nearly a 97% chance of this cut in October, along with a 96% chance for another reduction in December, as per the CME FedWatch tool.
- The ongoing U.S. government shutdown has led to discussions among Federal Reserve officials regarding the timing of possible interest rate cuts to support a flagging labor market versus keeping rates steady amidst inflation rates still above the Fed’s 2% target.
- The U.S. Bureau of Labor Statistics (BLS) reported that the CPI in the U.S. rose by 3.0% year-on-year in September, slightly below the forecast of 3.1% and up from 2.9% in August. Meanwhile, the monthly CPI showed a 0.3% increase, compared to a 0.4% rise in the previous month. Core CPI was up by 0.2% month-on-month, while annual core CPI stood at 3.0% in September.
- Amid negotiations, U.S. and Chinese officials reached agreements on several key issues, enabling President Trump and President Xi Jinping to meet on Thursday to finalize a trade deal intended to reduce tensions. Malaysian authorities noted that both sides resolved critical disputes like export controls and transport taxes.
- U.S. Treasury Secretary Scott Bessent mentioned in a CBS News interview that Trump’s proposition of imposing 100% tariffs on Chinese imports is effectively withdrawn. He also noted that China plans to make “significant” purchases of soybeans and defer rare earth export restrictions for a year pending review.
- Australia’s initial S&P Global Manufacturing Purchasing Managers’ Index (PMI) for October fell to 49.7 from 51.4. In contrast, the services PMI in October rose to 53.1, up from 52.4 the previous month, leading to an overall PMI increase to 52.6 from 52.4.
Australian dollar tests 0.6600 wall due to bullish shift
AUD/USD was seen around 0.6590 on Wednesday. Technical analysis indicates a bullish trend as the pair breaks above a descending channel and trades above the 9-day and 50-day exponential moving averages (EMAs), suggesting strong short-term and intermediate momentum.
The immediate resistance is noted at the psychological level of 0.6600. If the pair breaks this barrier, it could potentially reach 0.6707, a 12-month high touched on September 17th.
Conversely, the primary support level is set at the 50-day EMA at 0.6546, which aligns closely with the 9-day EMA at 0.6545. Should the price drop below these levels, a bearish sentiment could return, pushing the AUD/USD towards a four-month low of 0.6414 or possibly lower to about 0.6370 within the descending channel.
