Australian Dollar appreciates due to risk-on mood ahead of US Fed interest rate decision – FXStreet

• The Australian dollar is extending gains as risk sentiment improves ahead of the US Federal Reserve decision.
• The Reserve Bank of Australia's hawkish stance is supporting the Australian dollar.
• The US dollar is weakening as the Fed is likely to cut interest rates by 50 basis points on Wednesday.

The Australian Dollar (AUD) rose for a third straight day against the US Dollar (USD) on Wednesday. As investors await the Federal Reserve's (Fed) interest rate decision later in the day, rising expectations of a 50 basis point rate cut should support risk-sensitive currencies like the AUD.

The AUD/USD pair may see further gains as the Reserve Bank of Australia (RBA)'s hawkish stance continues to support the Australian dollar. RBA Governor Michelle Block said it is premature to consider cutting interest rates as inflation remains elevated. Additionally, RBA Deputy Governor Sarah Hunter noted that while the labor market remains tight, wage growth appears to have peaked and is expected to slow further.

The Federal Reserve is expected to cut interest rates at its September meeting after keeping them in a stable 5.25% to 5.5% range since July 2023. According to the CME FedWatch tool, the market is pricing the likelihood of a 25 basis point rate cut at 33.0%, while the likelihood of a 50 basis point rate cut has risen to 67.0% from 62.0% the previous day.

Daily Digest Market Trends: Australian dollar rises on dovish Fed policy outlook

• JPMorgan CEO Jamie Dimon said on Tuesday that whether the Federal Reserve cuts interest rates by 25 basis points or 50 basis points, the impact “won't be that significant.” According to Bloomberg, Dimon stressed that “the Fed needs to cut interest rates,” but noted that such moves would be relatively small in the grand scheme of things because “the real economy is running” beneath the Fed's rate changes.
• U.S. retail sales rose 0.1% month-on-month in August following a revised 1.1% increase in July, beating expectations of a 0.2% decline and signaling strength in consumer spending. Meanwhile, retail sales control group rose 0.3%, slightly down from the previous month's 0.4% increase.
• The ANZ-Roy Morgan consumer confidence index rose 1.8 points to 84.1, its highest level in eight weeks. ANZ noted the gains were broad-based, but confidence remains in pessimistic territory.
• Economists at Goldman Sachs and Citi have cut their forecasts for China's GDP growth in 2024 to 4.7%, below Beijing's target of about 5.0%. Société Générale described the situation as a “downward spiral,” while Barclays called it “only getting worse” and a “vicious circle.” Morgan Stanley also warned that “things may get worse before they get better,” according to a Reuters report.
• The University of Michigan Consumer Sentiment Index rose to 69.0 in September, beating market expectations of 68.0 and the highest level in four months. The increase reflects a gradually improving outlook for consumers' U.S. economy after months of declining economic expectations.
• China's economy weakened in August as industrial activity continued to slow and property prices fell, increasing pressure on Beijing to increase spending to stimulate demand, the National Bureau of Statistics reported on Saturday, according to the Business Standard.
• Australian consumer inflation expectations eased to 4.4% in September, down slightly from a four-month high of 4.5% in August. The decline highlights the central bank's efforts to balance lowering inflation within a reasonable timeframe with preserving gains in the labour market.

Technical reasons why: AUD remains above 0.6750; the next barrier is the 7-month high

The AUD/USD pair is trading near 0.6760 on Wednesday. Technical analysis on the daily chart shows that the pair is below the lower limit of an ascending wedge pattern (more pronounced on the lower timeframe), indicating a possible bearish reversal. However, the 14-day Relative Strength Index (RSI) is above the 50 level, suggesting a continuation of the bullish trend.

On the upside, a return to the ascending wedge will strengthen the bullish bias and push the AUD/USD pair to a new seven-month high at 0.6798 and subsequently towards the 0.6800 levels. Further resistance appears at the upper limit of the ascending wedge at 0.6820 levels.

On the downside, the AUD/USD pair is likely to find immediate support near the 9-day exponential moving average (EMA) at the 0.6730 level, followed by the psychological level at 0.6700. Below the latter, the pair may move through the area near the throwback support zone around 0.6575.

AUD/USD: Daily Chart