On Tuesday, the Australian dollar (AUD) dropped further against the US dollar (USD), marking the fifth consecutive session of declines. The AUD/USD exchange rate remains under pressure just before the Reserve Bank of Australia’s (RBA) interest rate decision, which is expected later today.
The RBA is largely anticipated to keep the official cash rate steady at 3.6% during this announcement. This decision will be made alongside the Monetary Policy Statement (MPS) and quarterly economic forecasts, set to be revealed at 3:30 PM Japan time, followed by a press briefing from RBA Governor Michelle Bullock.
According to the Melbourne Institute, the TD-MI inflation gauge for October increased by 0.3% month-on-month, slowing down from a 0.4% rise seen in September, although it marks a second consecutive month of increases. Annual inflation has crept up to 3.1%, slightly above the previous figure of 3.0%.
In a report from the Australian Bureau of Statistics (ABS), building permits surged by 12.0% month-on-month, rebounding after a 3.6% drop in August, surpassing market expectations of 5.5% growth. Conversely, ANZ job advertisements decreased by 2.2% month-on-month in October, following a revised 3.5% drop the previous month, marking the fourth month of decline.
USD gains traction amid Fed uncertainty
- The US Dollar Index (DXY), which tracks the USD against six major currencies, is currently experiencing a winning trend, trading near 100.00. This increase is bolstered by cautious market sentiment regarding the Federal Reserve’s policy in December.
- Traders of federal funds futures are now seeing a 65% chance of a rate cut in December, a notable decrease from 94% just a week prior, as indicated by the CME FedWatch tool.
- The Institute for Supply Management’s (ISM) Manufacturing Purchasing Managers Index (PMI) dropped to 48.7, down from 49.1 in September, and falling short of market predictions of 49.5.
- Federal Reserve Chairman Jerome Powell remarked during a recent press conference that while another rate cut in December is possible, it is not guaranteed. He cautioned that a wait-and-see approach may be necessary until formal data reporting resumes.
- Last week, the Fed voted 10-2 to cut interest rates by 25 basis points, bringing the benchmark interest rate down to a range of 3.75-4.0%. This decision was not unanimous; Fed Director Stephen Milan advocated for a more aggressive 50 basis point cut, while Kansas City Fed President Jeffrey Schmidt opted to maintain the current rates.
- Market players are particularly vigilant, as an extended government shutdown could amplify concerns over the U.S. economy. The deadlock over a Republican-supported funding bill has stretched into its sixth week, with no resolution in sight.
- In a recent announcement, the White House stated that, in return for the U.S. suspending certain tariffs and canceling a 100% tax on Chinese exports, China would halt additional export controls on rare earth materials and conclude investigations into U.S. semiconductor firms.
- US President Donald Trump indicated plans to restrict China’s access to Nvidia’s advanced semiconductor technology, according to CBS News. This statement risks rekindling trade tensions between the two nations, which had eased after talks with Chinese President Xi Jinping during the recent APEC summit in South Korea.
- For October, China’s Manufacturing Purchasing Managers Index (PMI) registered at 50.6, down from 51.2 in September, below the market estimate of 50.9. Given Australia’s close trade ties with China, shifts in the Chinese economy could significantly influence the Australian dollar (AUD).
- The RBA’s trimmed average CPI for the third quarter showed increases of 1.0% and 3.0% on a quarterly and annual basis, respectively. Market forecasts had anticipated sales growth of 0.8% quarter-over-quarter and 2.7% year-on-year for the quarter ending in September. The monthly consumer price index for August surged 3.5% year-on-year, surpassing the earlier 3.0% reading and exceeding expectations of 3.1%.
- Australia’s stronger-than-expected inflation data for the third quarter and August have tempered speculation about a quick rate cut from the RBA. Governor Bullock noted that the labor market remains relatively tight, despite the unexpected rise in unemployment.
Price momentum wanes as the AUD stays below $0.6550.
On Tuesday, the AUD/USD pair hovered around 0.6530. A technical analysis of the daily chart suggests that the pair is currently consolidating and fluctuating within a rectangular pattern. It’s worth noting that a recent dip below the 9-day exponential moving average (EMA) indicates diminishing short-term price momentum.
A significant support level appears to be at the psychological mark of 0.6500. Should the price fall below this, the AUD/USD could stabilize near the lower boundary of the rectangle around 0.6460 before potentially heading closer to a five-month low of 0.6414.
On the upside, the immediate resistance is seen at the nine-day EMA level at 0.6540. Any upward movement beyond this could bolster short-term price momentum and support the AUD/USD to challenge the significant level of 0.6600, which is followed by the upper resistance around 0.6630. A breakout beyond this rectangle would indicate a bullish trend and provide upward support as it seeks the area near the 13-month high seen on September 17th at 0.6707.
