The Australian Dollar (AUD) ceded its intraday gains against the US Dollar (USD) on Monday, despite receiving some support from hawkish sentiment surrounding the Reserve Bank of Australia (RBA). RBA Governor Michele Bullock indicated last week that it is premature to consider rate cuts, and the board does not foresee reducing rates in the near term.
The AUD has remained resilient in the face of weaker inflation data from China, released on Monday. China’s Consumer Price Index (CPI) rose 0.6% year-on-year in August, up from 0.5% in July but below the market consensus of 0.7%. On a monthly basis, CPI inflation increased by 0.4% in August, down from 0.5% in July and below the 0.5% estimate. Given Australia’s close trade ties with China, changes in the Chinese economy can significantly impact Australian markets.
The US Dollar gained support from Friday’s economic data, which reduced the likelihood of an aggressive interest rate cut by the Federal Reserve (Fed) at its September meeting. According to the CME FedWatch Tool, markets expect at least a 25 basis point (bps) rate cut by the Fed. The probability of a 50 bps cut has slightly decreased to 29.0%, down from 30.0% a week ago.
RBC Capital Markets now anticipates the RBA will implement a rate cut at its February 2025 meeting, earlier than its previous May 2025 forecast. Despite inflation in Australia remaining above the RBA’s target, slower economic growth is not deemed sufficient for a rate cut this year.
The US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) increased by 142,000 jobs in August, falling short of the forecast of 160,000 but improving from July’s downwardly revised figure of 89,000. The Unemployment Rate dropped to 4.2%, in line with expectations, down from 4.3% the previous month.
Federal Reserve Bank of Chicago President Austan Goolsbee suggested on Friday that Fed officials are aligning with market sentiment regarding a policy rate adjustment. FXStreet’s FedTracker rated Goolsbee’s comments as dovish with a score of 3.2.
The ADP Employment Change report showed an increase of 99,000 private-sector jobs in August, below the estimate of 145,000 but higher than July’s 111,000. Weekly US Initial Jobless Claims rose to 227,000 for the week ending August 30, slightly below the initial consensus of 230,000 but up from the previous reading of 232,000.
Australia’s trade surplus widened to AUD 6.009 billion in July, exceeding the expected AUD 5.150 billion and up from the previous AUD 5.589 billion. The Australian GDP grew by 0.2% quarter-on-quarter for the second quarter, up from 0.1% in the previous quarter but below the expected 0.3%.
Bank of America (BoA) has revised its growth forecast for China, lowering the 2024 projection to 4.8% from 5.0%, with 2025 and 2026 forecasts remaining at 4.5% growth.
Technical analysis of the AUD/USD pair shows it trading around 0.6680 on Monday. The daily chart indicates the pair remains below the nine-day Exponential Moving Average (EMA), suggesting a short-term bearish trend. The 14-day Relative Strength Index (RSI) has fallen below 50, reinforcing bearish momentum.
Immediate support is provided by the 50-day EMA at 0.6676. A decisive break below this level could deepen the bearish trend, potentially pushing the pair towards 0.6575, with further declines targeting around 0.6470. Resistance may be encountered around the nine-day EMA at 0.6720. A break above this level could lead to a retest of the seven-month high at 0.6798.
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