The Australian dollar (AUD) held steady against the US dollar (USD) on Tuesday. The AUD/USD exchange rate didn’t change much following the release of the Reserve Bank of Australia’s (RBA) minutes from its September monetary policy meeting. These notes indicated that while the board felt the policy was still somewhat restrictive, making decisions is proving to be challenging.
Additionally, the RBA minutes highlighted ongoing economic risks, mentioning that consumer spending remains weak as employment and wage growth slow down. Monthly Consumer Price Index (CPI) data for housing and services suggests that inflation for the third quarter might exceed initial expectations.
The market seems to be treading carefully after RBA Governor Michelle Bullock commented last week about the persistent nature of services inflation. He acknowledged that inflation figures for the second quarter were slightly above expectations but expressed confidence that the situation is generally on the right path.
In October, Australian consumer inflation expectations rose to 4.8%, up from 4.7%, marking the highest level since June. This growing concern about potentially stronger-than-expected inflation in the third quarter has fed into a cautious outlook for the RBA. Traders generally expect that the RBA will maintain current interest rates following the decision to keep the official cash rate at 3.6% in September.
US dollar gains strength ahead of Fed Chairman Jerome Powell’s speech
- The US Dollar Index (DXY), which tracks the value of the US dollar against six major currencies, has remained stable, trading around 99.30. Traders are keenly awaiting Federal Reserve Chairman Jerome Powell’s speech later today.
- Currently, the markets are pricing in a nearly 97% probability of a Fed rate cut in October, with a 92% chance of another cut in December, based on insights from the CME FedWatch tool.
- Philadelphia Fed President Anna Paulson stated on Monday that rising risks in the job market support further interest rate cuts by the central bank, adding that trade tariffs are unlikely to significantly boost inflation.
- Minutes from the September FOMC meeting revealed that policymakers are leaning towards more rate cuts by the year’s end. A majority backed a cut in September while indicating support for future cuts, though some members preferred a more cautious approach due to inflation concerns.
- US President Donald Trump remarked on Friday that there’s no reason for a meeting with Chinese President Xi Jinping at their upcoming summit in South Korea. He also indicated plans to impose 100% tariffs on Chinese imports. However, in a more conciliatory tone on Sunday, Trump commented that China’s economy is “fine” and that the United States aims to “help China, not hurt it.”
- China’s Ministry of Commerce announced new regulations regarding rare earth exports, effective December 1. Foreign entities must have a dual-use item export license for such exports.
- China’s trade balance for September stood at 645.47 billion yuan, a drop from 732.7 billion yuan previously recorded. Exports rose by 8.4% year-on-year in September, while imports increased by 7.5% over the same period. In USD terms, China’s trade surplus was $90.45 billion, narrower than the $98.96 billion estimate for September, and down from $102.33 billion previously.
- A report from the Age newspaper noted that a preliminary document from Australian Prime Minister Anthony Albanese’s department indicated that officials have started discussions with miners about contributing to the A$1.2 billion ($776.28 million) Critical Minerals Strategic Reserve. Australia is contemplating setting minimum prices for critical minerals and funding new rare earth initiatives under a proposed agreement with the United States.
Australian dollar crosses the 0.6500 mark, targeting the 9-day EMA barrier
On Tuesday, the AUD/USD pair was trading around 0.6510. Analyzing the daily chart shows a prevailing bearish trend as the pair continues to move within a descending channel pattern. Furthermore, the 14-day Relative Strength Index (RSI) sits below the 50 level, which reinforces this bearish outlook.
If the AUD/USD pair moves downward, it could target the lower end of the channel at about 0.6460. A break below this range might solidify the bearish sentiment and test the four-month low of 0.6414 reached on August 21, followed by a five-month low of 0.6372.
The first resistance level is the 9-day exponential moving average (EMA) at 0.6546, followed by the 50-day EMA at 0.6556. Surpassing these levels could improve the short and medium-term price momentum and allow the AUD/USD pair to approach the upper boundary of the descending channel at around 0.6600. A breakout beyond this channel might trigger a bullish sentiment and support a move towards the 12-month high of 0.6707 recorded on September 17.
