- The Australian Dollar strengthens due to a slight rise in the probability of a 50 basis point rate cut by the Fed.
- Support for the Aussie Dollar is bolstered by the Reserve Bank of Australia's hawkish stance.
- The US Dollar struggles as Treasury yields decline amidst uncertainty about the extent of the Fed's rate cut.
The Australian Dollar (AUD) edges higher against the US Dollar (USD) on Monday. The AUD/USD pair could appreciate further amid growing speculation that the US Federal Reserve will implement a substantial 50 basis point rate cut at this week's monetary policy meeting. Traders are also awaiting Australian jobs data later this week to assess the labor market's health and its potential impact on domestic monetary policy.
The Reserve Bank of Australia (RBA) maintains a hawkish stance, with RBA Governor Michele Bullock indicating that it is too early to consider rate cuts given persistently high inflation. RBA Assistant Governor Sarah Hunter highlighted that while the labor market remains tight, wage growth seems to have peaked and is expected to decelerate further.
The US Dollar faces downward pressure as US Treasury yields decline amid uncertainty over the Fed's rate cut decision. According to the CME FedWatch Tool, the market now anticipates a 48% chance of a 25 basis point rate cut by the Fed at its September meeting, with the probability of a 50 basis point cut rising to 52%, up from 50% the previous day.
Daily Digest Market Movers: Australian Dollar Gains Amid Fed Rate Cut Uncertainty
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The University of Michigan’s Consumer Sentiment Index increased to 69.0 in September, surpassing the market expectation of 68.0 and reaching a four-month high. This rise suggests a gradual improvement in consumer confidence in the US economy following a period of declining expectations.
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China's Retail Sales grew by 2.1% year-on-year in August, a slowdown from 2.7% in July and below the market consensus of 2.5%. Given the close trade ties between China and Australia, shifts in China's economic performance could significantly affect the Australian market.
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China's economy showed signs of weakness in August, with continued industrial slowdowns and falling real estate prices. The National Bureau of Statistics reported growing pressure on Beijing to increase spending to stimulate demand, according to Business Standard.
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The US Producer Price Index (PPI) rose by 0.2% month-on-month in August, exceeding the forecasted 0.1% increase and up from 0.0% in July. Core PPI accelerated to 0.3% MoM, surpassing the expected 0.2% rise and July’s 0.2% decline.
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Former Reserve Bank of Australia (RBA) Governor Bernie Fraser criticized the current RBA Board for being too focused on inflation at the expense of the job market. Fraser suggested that the Board should lower the cash rate to avoid "recessionary risks" that could negatively impact employment.
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Australia’s Consumer Inflation Expectations eased to 4.4% in September, down slightly from August’s four-month high of 4.5%. This decline reflects the central bank's efforts to balance reducing inflation while maintaining labor market gains.
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The US Consumer Price Index (CPI) fell to 2.5% year-on-year in August, down from 2.9% previously and missing the expected 2.6%. On a monthly basis, the CPI rose by 0.2%. Core CPI, excluding food and energy, remained unchanged at 3.2% YoY, with a monthly increase to 0.3% from the prior 0.2%.
Technical Analysis: Australian Dollar Tests Upper Boundary of Descending Channel at 0.6700
The AUD/USD pair is trading near 0.6700 on Monday. Technical analysis of the daily chart reveals that the pair is testing the upper boundary of a descending channel. A successful breakout above this level could indicate a shift from a bearish to a bullish bias. The 14-day Relative Strength Index (RSI) remains above the 50 mark, suggesting a potential shift in momentum toward a bullish trend.
If the pair breaks above the 0.6700 level, it could establish a bullish trend, potentially pushing the AUD/USD towards its seven-month high of 0.6798 and testing the psychological level of 0.6800.
On the downside, immediate support is anticipated around the nine-day Exponential Moving Average (EMA) at 0.6703. A move below this support level could reinforce a bearish outlook and lead the pair towards the lower boundary of the descending channel, with a potential support zone near 0.6575.
AUD/USD: Daily Chart
