The Australian Dollar reaches fresh nine-month highs following the RBA's decision to maintain the official cash rate (OCR) unchanged

The Australian Dollar (AUD) strengthened against the US Dollar (USD) after the Reserve Bank of Australia (RBA) opted to keep the Official Cash Rate (OCR) at 4.35%. The decision was influenced by robust labor market conditions and ongoing inflationary pressures. The RBA Board remains dedicated to bringing inflation back to its target level, as it continues to exceed expectations and proves persistent, keeping all options open.

Meanwhile, the ANZ-Roy Morgan Australia Consumer Confidence Index increased by 0.8 points to 84.9 this week. Despite this rise, Consumer Confidence has stayed below the 85.0 mark for 86 consecutive weeks. Year-over-year, the index is up by 8.5 points from a previous reading of 76.4.

The US Dollar (USD) may encounter challenges as Federal Reserve (Fed) officials project an additional 50 basis points (bps) in rate cuts for 2024, following last week's aggressive 50 bps reduction. Minneapolis Fed President Neel Kashkari highlighted on Monday his expectation and support for further rate cuts in the coming year, according to Reuters.

Daily Digest Market Movers: Australian Dollar Holds Steady Amid Hawkish RBA Sentiment

• Market expectations indicate a 50% chance of a 75 basis point rate cut by the Fed, potentially lowering rates to a range of 4.0-4.25% by the end of the year, according to the CME FedWatch Tool.
• The S&P Global Composite Purchasing Managers Index (PMI) showed slower growth in September, registering 54.4 compared to 54.6 in August. The Manufacturing PMI unexpectedly fell to 47.0, signaling contraction, while the Services PMI expanded beyond expectations to reach 55.4.
• Chicago Fed President Austan Goolsbee stated, "Many more rate cuts are likely needed over the next year; rates need to come down significantly." Atlanta Fed President Raphael Bostic also commented that the US economy is nearing normal levels of inflation and unemployment, suggesting that the central bank needs to "normalize" its monetary policy, as reported by Reuters.
• In China, the People's Bank of China (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, the central bank provided CNY 160.1 billion via a 7-day reverse repo, maintaining the rate at 1.7%.
• Australian Treasurer Jim Chalmers is working on establishing a new monetary policy board at the Reserve Bank of Australia (RBA) but requires support from the Greens Party. The Greens have indicated they will only back changes at the RBA if there is a commitment to reducing interest rates.
• Australia's Judo Bank Composite PMI fell to 49.8 in September from 51.7 in August, reflecting a contraction in business activity. This decline was driven by slower growth in the services sector, unable to offset a deeper slump in manufacturing. The Services PMI dropped to 50.6 from 52.5, while the Manufacturing PMI decreased to 46.7 from 48.5.
• Commonwealth Bank (CBA) has revised its expectation for the RBA's first rate cut, moving it from November 2024 to December 2024, reflecting a strong employment rate and a continued "hawkish" outlook from the central bank, according to Yahoo Finance.
• Australian Employment Change stood at 47.5K in August, down from a revised 48.9K (previously 58.2K) in July, yet significantly above the consensus forecast of 25.0K. The Unemployment Rate remained steady at 4.2% in August, aligning with expectations and the previous month’s figure, as per data released by the Australian Bureau of Statistics (ABS).
• RBA Governor Michele Bullock emphasized that it is too early to consider rate cuts given the persistently high inflation. Additionally, RBA Assistant Governor Sarah Hunter noted that while the labor market remains tight, wage growth appears to have peaked and is expected to slow further.

Technical Analysis: Australian Dollar Holds Steady Near Nine-Month High Around 0.6840

The AUD/USD pair is currently trading around 0.6840 on Tuesday. Daily chart analysis reveals that the pair is moving upward within an ascending channel pattern, indicating a bullish sentiment. Additionally, the 14-day Relative Strength Index (RSI) remains above 50, further confirming the ongoing bullish trend.

The AUD/USD pair is testing the nine-month high of 0.6839, last reached on September 19. A breakout above this level could propel the pair toward the upper boundary of the ascending channel, around the 0.6910 mark.

On the downside, support for the AUD/USD pair can be found at the lower boundary of the ascending channel, which aligns with the nine-day Exponential Moving Average (EMA) at 0.6788. Further significant support lies at the psychological level of 0.6700. A break below this level could lead the pair to decline toward its six-week low of 0.6622.

AUD/USD: Daily Chart