- EUR/JPY faces renewed selling pressure on Tuesday, halting its recovery from a more than one-month low.
- The contrasting policy outlooks between the Bank of Japan (BoJ) and the European Central Bank (ECB) continue to weigh on the pair.
- Traders are likely to remain cautious, awaiting the upcoming BoJ policy meeting before making new directional moves.
The Australian Dollar (AUD) recovers intraday losses against the US Dollar (USD) on Tuesday, driven by dovish sentiment regarding the US Federal Reserve's upcoming interest rate decision. However, the Aussie Dollar is under pressure due to growing concerns about China's economic health. Recent weak economic data highlights serious challenges for China's economy, which impacts Australia given its status as a major trading partner.
Economists from Goldman Sachs and Citi have downgraded their 2024 GDP growth forecasts for China to 4.7%, falling short of Beijing's 5.0% target. SocGen describes the situation as a "downward spiral," Barclays refers to it as "from bad to worse" and a "vicious cycle," and Morgan Stanley warns that "things could get worse before they get better," according to a Reuters report.
Despite these challenges, the AUD/USD pair's decline may be limited, as the Australian Dollar benefits from the Reserve Bank of Australia's (RBA) hawkish stance. Meanwhile, the US Dollar is under pressure due to rising expectations of a significant 50 basis point rate cut by the Federal Reserve on Wednesday.
The CME FedWatch Tool indicates a 38.0% probability of a 25 basis point rate cut at the Fed's September meeting, while the likelihood of a 50 basis point cut has surged to 62.0%, up from 50.0% the previous day. This shift reflects growing anticipation of more aggressive monetary easing.
Daily Digest Market Movers: Australian Dollar Steady Ahead of Fed Interest Rate Decision
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The ANZ-Roy Morgan Consumer Confidence Index increased by 1.8 points to 84.1, reaching an eight-week high. Despite the broad-based rise, confidence remains in pessimistic territory, according to ANZ.
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The University of Michigan’s Consumer Sentiment Index rose to 69.0 in September, surpassing the market expectation of 68.0 and marking a four-month high. This uptick indicates a gradual improvement in consumer outlook on the US economy after several months of declining expectations.
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China's economy showed signs of weakness in August, with continued slowdowns in industrial activity and falling real estate prices. The National Bureau of Statistics reported that the government faces increasing pressure to boost spending to stimulate demand.
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China’s Retail Sales grew by 2.1% year-on-year in August, slowing from 2.7% in July and missing the market consensus of 2.5%.
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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% change. Core PPI accelerated to 0.3% MoM, exceeding the expected 0.2% increase and July’s 0.2% decline.
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Australia’s Consumer Inflation Expectations eased to 4.4% in September, slightly down from August’s four-month high of 4.5%. This decline reflects the central bank's efforts to manage inflation while maintaining labor market gains.
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The Reserve Bank of Australia (RBA) remains hawkish, with Governor Michele Bullock indicating that it is too early to consider rate cuts due to persistently high inflation. RBA Assistant Governor Sarah Hunter noted that while the labor market remains tight, wage growth seems to have peaked and is expected to slow.
Technical Analysis: Australian Dollar Climbs to 0.6750; Next Resistance at Seven-Month Highs
The AUD/USD pair trades near 0.6750 on Tuesday. Technical analysis of the daily chart reveals that the pair has breached the upper boundary of a descending channel, signaling a weakening bearish bias. The 14-day Relative Strength Index (RSI) is slightly above the 50 level, indicating a potential shift from a bearish to a bullish trend.
On the upside, the breakout above the descending channel has introduced a bullish bias for the AUD/USD pair. This movement could propel the pair towards its seven-month high of 0.6798 and test the psychological level of 0.6800.
On the downside, immediate support for the AUD/USD pair could be found around the nine-day Exponential Moving Average (EMA) at 0.6719, followed by the upper boundary of the descending channel at 0.6690. A return to the descending channel could reinforce the bearish sentiment, potentially driving the pair towards the throwback support zone near 0.6575, and the lower boundary of the channel at 0.6550.
AUD/USD: Daily Chart
