The Australian Dollar has declined as the US Dollar maintains its strength, bolstered by a less-dovish stance from the Federal Reserve

The Australian Dollar (AUD) is experiencing a decline for the second consecutive session on Monday. However, the hawkish remarks from the Reserve Bank of Australia (RBA) may help limit further losses for the AUD/USD pair. Traders are exercising caution as they await key domestic inflation data scheduled for release on Wednesday, which could significantly influence the RBA’s monetary policy outlook.

The RBA has indicated that the current cash rate of 4.35% is adequately restrictive to guide inflation back within the target range of 2%-3% while also supporting employment. As a result, a rate cut from the RBA in the near term appears unlikely.

In contrast, the US Dollar (USD) is gaining strength, bolstered by recent positive economic data from the United States, which has heightened expectations for a more cautious stance from the Federal Reserve (Fed) in November. According to the CME FedWatch Tool, there is a 92.8% probability of a 25-basis-point rate cut by the Fed next month, with no expectation of a more substantial 50-basis-point cut.

Daily Digest Market Movers: The Australian Dollar depreciates as the Fed may adopt a less dovish stance.

• In recent weeks, allies of former President Donald Trump have faced numerous court defeats in key battleground states, which could impact the upcoming November 5 election between Republican candidate Trump and his Democratic opponent, Vice President Kamala Harris.
• Additionally, heightened uncertainty surrounding the Middle East conflict may have bolstered the safe-haven appeal of the US Dollar. Israel's recent restrained targeted attack on Iran, coordinated with Washington, was more measured than many had anticipated.
• The US Michigan Consumer Sentiment Index has risen to 70.5 in October, up from 68.9 previously, surpassing expectations of 69.0. Furthermore, Durable Goods Orders fell by 0.8% month-over-month in September, a smaller decline than the anticipated 1.0% decrease. S&P Global has released its preliminary October US Purchasing
• Managers Index (PMI) readings, indicating positive momentum across various sectors. The Composite PMI increased to 54.3 from the previous 54.0, while the Services PMI exceeded expectations at 55.3, compared to the forecast of 55.0, and improved slightly from the prior 55.2. The Manufacturing PMI also showed strength, coming in at 47.8, above the expected 47.5, and improving from 47.3.
• In Australia, the Judo Bank Composite PMI saw a slight increase to 49.8 in October, up from 49.6 in September, signaling a second consecutive month of contraction in private sector output. The Services PMI rose to 50.6 from 50.5, marking its ninth month of expansion, while the Manufacturing PMI fell to 46.6 from 46.7, continuing its decline.
• In a recent post on the social media platform X, Federal Reserve Bank of San Francisco President Mary Daly emphasized that the economy is in a stronger position, with significant reductions in inflation and a labor market moving towards sustainability.
• RBA Deputy Governor Andrew Hauser also noted the strong labor participation rate in the country and highlighted that while the RBA relies on data, it does not become overly fixated on it.

Technical Analysis: Australian Dollar moves below 0.6600 within the descending channel

The AUD/USD pair is trading around 0.6600 on Monday, with daily chart analysis suggesting a short-term bearish outlook. The pair is trending lower within a descending channel pattern, and the 14-day Relative Strength Index (RSI) is nearing the 30 mark, reinforcing the bearish sentiment.

On the support side, the AUD/USD pair may test the lower boundary of the descending channel, around the 0.6560 level.

For resistance, the immediate barrier is the psychological level of 0.6600, followed by the upper boundary of the descending channel at 0.6630. A breakout above this level could allow the pair to approach the nine-day Exponential Moving Average (EMA) at 0.6652.