- The AUD/USD pair strengthens as US data bolster expectations of an aggressive Fed rate cut next week.
- The US Producer Price Index exceeded forecasts, fueled by rising service costs.
- The Fed is anticipated to implement a 25-basis point rate cut at its September meeting.
The AUD/USD continues its upward trend for the third consecutive session on Friday, buoyed by US economic data that bolstered expectations of a 50 basis point rate cut by the Federal Reserve next week.
The US Labor Department reported an increase in Initial Jobless Claims for the previous week, aligning with forecasts and exceeding the previous week’s figures. Additionally, US factory inflation rose above expectations, driven by higher service costs. Investors are now turning their attention to the Michigan Consumer Sentiment Index, set for release later today.
The CME FedWatch Tool indicates that markets fully anticipate at least a 25 basis point rate cut by the Federal Reserve at its September meeting, with the likelihood of a 50 basis point cut rising sharply to 41.0% from 14.0% the previous day.
The Australian Dollar (AUD) has found support from the Reserve Bank of Australia (RBA), as Governor Michele Bullock maintained a hawkish stance, stating last week that it is too early to consider rate cuts due to persistently high inflation.
Daily Digest Market Movers: Australian Dollar extends gains on improved risk sentiment
- The US Producer Price Index (PPI) increased by 0.2% month-on-month in August, surpassing the forecasted 0.1% rise and the previous 0.0%. Core PPI also accelerated to 0.3% MoM, beating expectations of 0.2% and July’s 0.2% contraction.
- US Initial Jobless Claims edged up to 230K for the week ending September 6, slightly higher than the prior 228K reading and in line with expectations.
- Former Reserve Bank of Australia (RBA) Governor Bernie Fraser criticized the current RBA Board for focusing too heavily on inflation at the expense of the job market, suggesting a need for a rate cut due to potential "recessionary risks" impacting employment.
- Australia’s Consumer Inflation Expectations eased to 4.4% in September, down from August’s four-month high of 4.5%, reflecting the central bank’s efforts to manage inflation while supporting the labor market.
- The US Consumer Price Index (CPI) declined to 2.5% year-on-year in August, down from 2.9% previously and below the expected 2.6%. On a monthly basis, headline CPI remained at 0.2%.
- Core CPI excluding Food & Energy remained steady at 3.2% YoY, with a monthly increase to 0.3% from the previous 0.2%.
- The first US presidential debate between former President Donald Trump and Democratic nominee Kamala Harris, held in Pennsylvania, was won by Harris according to a CNN poll, focusing on the economy, inflation, and economic policies.
- On Wednesday, RBA Assistant Governor for Economics Sarah Hunter noted that high interest rates are suppressing demand, which is expected to lead to a mild economic downturn. She also highlighted that while employment growth is projected to continue, it will be slower than population growth, with the labor market remaining tight relative to full employment levels.
Technical Analysis: Australian Dollar breaks above 0.6700 and nine-day EMA
The AUD/USD pair is trading near 0.6730 on Friday. Technical analysis of the daily chart shows that the pair has broken above the descending channel, indicating a weakening bearish trend. Additionally, the 14-day Relative Strength Index (RSI) has risen above the 50 level, signaling a shift from a bearish to a bullish momentum.
On the upside, the AUD/USD pair could target its seven-month high of 0.6798, with 0.6800 serving as a key psychological level.
On the downside, immediate support may be found around the upper boundary of the descending channel at approximately 0.6720, followed by the nine-day Exponential Moving Average (EMA) at 0.6707.
Should the pair return to the descending channel, it would reinforce the bearish bias, potentially guiding it towards the lower boundary of the channel near 0.6600, with additional support around the 0.6575 zone.
AUD/USD: Daily Chart
