The Australian dollar (AUD) slipped against the US dollar (USD) on Thursday as traders became more cautious with the upcoming US inflation report for September looming. This situation is occurring amid a data blackout, which adds to the uncertainty.
However, the Aussie received a bit of a boost when US President Donald Trump expressed optimism about reaching an agreement with China in his upcoming meeting with Chinese President Xi Jinping in South Korea. Considering Australia’s tight trade ties with China, changes in the Chinese economy could affect the value of the Australian dollar significantly.
The AUD/USD pair is facing obstacles as speculation mounts around potential short-term interest rate cuts from the Reserve Bank of Australia (RBA). Recently released job market data revealed a surprising spike in unemployment, reaching its highest level in nearly four years this past September. This unexpected rise unsettled the markets and increased the likelihood of a 25 basis point cut to about 70%, a substantial jump from roughly 40% just the previous week. Traders are now closely monitoring economic indicators, from the preliminary PMI readings to next week’s crucial third-quarter CPI figures, to gauge what the central bank might do next.
The Australian dollar has also benefited from an upbeat market outlook following advancements in the US-Australia trade agreement. On Monday, President Trump and Australian Prime Minister Anthony Albanese inked an $8.5 billion agreement focused on critical minerals, aimed at securing access to Australia’s wealth of rare earth resources amid dwindling Chinese export controls. They also pledged to invest a minimum of $1 billion each in mining and processing initiatives over the next six months.
US dollar rises as President Trump hopes for deal with China
- The US dollar index (DXY), which gauges the value of USD against six major currencies, has been trending up, hovering around 99.00 as of this report. Trump’s remarks on Wednesday boosted the dollar, particularly his comments about expecting new deals during his meeting with Xi next week, which is set to address a range of topics including US soybean exports and nuclear weapons limitations.
- Nonetheless, the US dollar might encounter difficulties due to the ongoing government shutdown, which is delaying the release of important economic indicators like nonfarm payrolls (NFP), leaving a cloud of uncertainty in financial markets and for the Federal Reserve.
- The government’s shutdown stretched into its fourth week on Monday, with the Senate failing to progress on a House-passed bill meant to fund the government. This marks the 11th unsuccessful attempt to break the deadlock, with the recent vote falling primarily along partisan lines. It’s now the third longest funding lapse in recent history.
- A Reuters poll indicated that among 117 economists, 115 expect the Fed to lower its monetary policy rate by 25 basis points to a range of 3.75-4.00% in the announcement scheduled for October 29. For 2020, 83 of them foresee two rate cuts, while 32 anticipate one cut.
- Currently, markets are pricing in a nearly 97% chance for a rate cut in October, and a 96% probability for another cut in December, according to the CME FedWatch tool.
- The People’s Bank of China (PBOC) decided to keep the one-year and five-year loan prime rates (LPR) unchanged at 3.00% and 3.50%, respectively, on Monday.
- China’s gross domestic product (GDP) recorded a year-on-year growth of 4.8% in the third quarter, aligning with expectations after a 5.2% rise in the second quarter. On a quarterly basis, growth was 1.1%, exceeding market consensus of 0.8%.
- Retail sales in China grew by 3.0% year-on-year in September, slightly surpassing the expected 2.9% and down from the previous 3.4%. Meanwhile, industrial production grew by 6.5%, outperforming the anticipated 5.0% and the 5.2% in August.
Australian dollar aims for 0.6500 barrier near 9-day EMA
AUD/USD was trading close to 0.6490 on Thursday. Daily chart analysis shows the pair is moving within a descending channel, indicating a clear bearish tendency. The 14-day RSI remains below 50, pointing towards a strengthened bearish outlook.
If the AUD/USD pair continues to face downward pressure, it might linger around 0.6414—a four-month low—before heading towards the lower boundary of the descending channel near 0.6400. If it breaks below this support zone, it could amplify the bearish sentiment and possibly test the five-month low of 0.6372.
The AUD/USD pair is currently trading alongside a 9-day Exponential Moving Average (EMA) at around 0.6504, with immediate resistance at the psychological level of 0.6500. Any further upward movement could improve the short-term price momentum, potentially allowing the pair to test the 50-day EMA at 0.6541, followed by the upper limit of the descending channel around 0.6560.
