- The Australian Dollar gains support from hawkish expectations ahead of the upcoming RBA monetary policy decision.
- Additionally, the AUD may have been bolstered by the PBoC's liquidity injection into the banking system.
- The AUD/USD pair remains stable, with the RBA expected to maintain the Official Cash Rate at 4.35% on Tuesday.
The Australian Dollar (AUD) remains steady against the US Dollar (USD) despite weaker Purchasing Managers Index (PMI) data released on Monday. The AUD/USD pair is likely gaining strength due to the People’s Bank of China (PBoC) injecting liquidity into the banking system. Given the close economic ties between China and Australia, developments in China’s economy can significantly influence Australian markets.
The PBoC injected CNY 74.5 billion into the banking system through a 14-day reverse repo, lowering the rate to 1.85% from 1.95%. Additionally, it injected CNY 160.1 billion via a 7-day reverse repo at an unchanged rate of 1.7%.
The AUD could also be buoyed by hawkish sentiment surrounding the Reserve Bank of Australia’s (RBA) upcoming interest rate decision on Tuesday, with the RBA expected to maintain the Official Cash Rate (OCR) at 4.35%. This decision is supported by strong labor market data and persistent inflationary pressures.
Meanwhile, the US Dollar (USD) may face downward pressure as Federal Reserve (Fed) officials project an additional 50 basis points (bps) of rate cuts in 2024, following last week's aggressive 50 bps cut to a 4.75-5.00% range. Traders are also awaiting the release of US PMI data later in the North American session.
Daily Digest Market Movers: Australian Dollar Steady Amid Hawkish RBA Expectations
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Australian Treasurer Jim Chalmers is working to form a new monetary policy board at the Reserve Bank of Australia (RBA), but requires support from the Greens Party. The Greens have signaled they will only back the changes if there is a commitment to lowering interest rates.
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On Friday, Philadelphia Fed President Patrick Harker stated that the US central bank has successfully navigated a challenging economic environment in recent years. He likened monetary policy to driving a bus, highlighting the need to balance speed.
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Australia's Judo Bank Composite PMI fell to 49.8 in September from 51.7 in August, reflecting a contraction in business activity as slower growth in the services sector failed to offset a deeper decline in manufacturing output. The Services PMI dropped to 50.6 in September from 52.5, while the Manufacturing PMI decreased to 46.7 from 48.5 in August.
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The People’s Bank of China (PBoC) kept its one-year and five-year Loan Prime Rates (LPRs) unchanged at 3.35% and 3.85%, respectively, on Friday.
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Commonwealth Bank of Australia (CBA) has shifted its forecast for the first RBA rate cut from November 2024 to December 2024. This adjustment follows robust employment figures and the central bank's continued hawkish outlook, according to Yahoo Finance.
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Australia's Employment Change for August came in at 47.5K, slightly below July's revised figure of 48.9K, but well above the 25.0K consensus forecast. The Unemployment Rate held steady at 4.2%, matching both expectations and the previous month’s figure, according to the Australian Bureau of Statistics (ABS).
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RBA Governor Michele Bullock stressed that it is too soon to consider rate cuts given the persistent inflation. RBA Assistant Governor Sarah Hunter also noted that while the labor market remains tight, wage growth appears to have peaked and is expected to slow.
Technical Analysis: Australian Dollar Holds Above 0.6800 as It Tests the Ascending Channel's Lower Boundary
The AUD/USD pair is trading near 0.6820 on Monday, with technical analysis of the daily chart indicating that the pair is testing the lower boundary of the ascending channel, signaling a potential weakening in bullish momentum. However, with the 14-day Relative Strength Index (RSI) still above 50, further price action in this contested area will offer a clearer indication of the pair’s direction.
If the AUD/USD pair bounces off the lower boundary of the ascending channel near the nine-month high of 0.6839, reached on September 19, it could push toward the upper boundary around the 0.6890 level.
On the downside, immediate support lies near the nine-day Exponential Moving Average (EMA) at 0.6771, with further key support at the psychological level of 0.6700. A break below this could drive the pair toward its six-week low of 0.6622.
AUD/USD: Daily Chart
