The Australian Dollar (AUD) saw a decline against the US Dollar (USD) on Wednesday, marking its second consecutive day of losses. The AUD/USD pair was pressured by investment outflows as the S&P/ASX 200 index dropped by 0.14%, trading below 8,950 at the time of reporting. This situation intensified the losses in technology and gold stocks.
Challenges for the AUD intensified following the release of disappointing housing data. Private housing approvals in Australia fell by 2.6% in August to 9,027 units, reversing the previous month’s increase of 1.3%. Additionally, seasonal building permits also declined, first by 10% and then a further 6%, now totaling 14,744 units, marking the second month of consecutive decreases.
There’s potential for the AUD to regain some strength due to the cautious stance of the Reserve Bank of Australia (RBA). The central bank is anticipated to keep interest rates steady after choosing to maintain the official cash rate (OCR) at 3.6% during September. The RBA noted that inflation has proven to be more persistent in various market services than previously expected, while the job market remains tight.
Despite government shutdowns, the Australian dollar will decline as the US dollar extends profits
- The US Dollar Index (DXY), which gauges the dollar’s strength against six major currencies, has risen for the third straight day, trading around 98.80 as of writing. The minutes from the Federal Open Market Committee (FOMC) meeting will be released later today.
- Amid ongoing government shutdowns, demand for safer investments is increasing, with President Trump hinting at possible mass layoffs as a potential solution.
- Stephen Miran from the Federal Reserve expressed on Tuesday that inflation is a result of “population growth,” suggesting monetary policy needs to adapt to maintain relevance with shifting neutral rates.
- Minneapolis Fed President Neil Kashkari offered a more moderate opinion than some colleagues while cautioning that he cannot determine whether inflation driven by tariffs is “sticky.” He remains optimistic about the labor market and recent job creation trends.
- Kansas City Fed President Jeffrey Schmidt made hawkish comments on Monday, asserting that the Fed must uphold inflation credibility, pointing out that inflation levels are unacceptably high. He emphasized that necessary adjustments to monetary policy are being made.
- The CME FedWatch tool indicates a nearly 95% market expectation for a Fed rate cut in October, with an 83% chance for another reduction in December.
- The US Senate has passed a spending proposal to reopen the federal government for the fourth time, prolonging its ongoing shutdown into another week. This closure has halted key federal programs and delayed essential economic data, including employment figures for September.
- The latest ADP Employment Change Report released on Wednesday showed a drop of 32,000 private sector jobs in September, with annual wage growth pegged at 4.5%. This figure fell short of market expectations of 50,000 and followed a revision of August’s numbers to a smaller decline of 3,000.
- Current job trends suggest a deceleration in the labor market; however, job vacancies ticked up slightly from 7.21 million to 7.23 million in August. The employment rate decreased to 3.2%, its lowest since June 2024, though layoffs remained limited.
- In October, consumer confidence in Australia’s Westpac dropped by 3.5% to a score of 92.1, marking the largest decline since April. ANZ’s job advertisements fell by 3.3% month-over-month in September, which is a sharper drop compared to the previous decline of 0.3%.
- The TD-MI inflation indicator rose by 0.4% month-on-month in September, recovering from a 0.3% drop the prior month. Additionally, the annual inflation gauge increased to 3%, up from 2.8% previously.
Australian Dollar Tests Lower Ascending Channel Boundary Near 0.6550
The AUD/USD pair was trading near 0.6570 on Wednesday. Technical analysis indicates that the pair remains within an upward channel, pointing towards a persistently bullish outlook. The 14-day relative strength index (RSI) is above the 50 mark, reinforcing this bullish sentiment.
On the flip side, the AUD/USD pair could see a rebound toward the 9-day exponential moving average (EMA) at 0.6589. A breach above this level might enhance short-term price momentum and potentially lead the pair to explore the 12-month high of 0.6707 noted on September 17th.
Immediate support lies at the lower boundary of 0.6560 of the ascending channel. If the price falls below this channel, it could trigger a bearish phase, pushing the AUD/USD pair back towards the region of 0.6414, last recorded on August 21st.
