The Australian Dollar (AUD) has rebounded from earlier losses, extending its winning streak against the US Dollar (USD) following the People’s Bank of China’s (PBoC) decision to maintain its one-year and five-year Loan Prime Rates (LPRs) at 3.35% and 3.85%, respectively. As key trade partners, developments in the Chinese economy heavily influence the Australian markets.
Support for the AUD/USD pair was bolstered by a positive labor market report and the Federal Reserve’s (Fed) recent 50 basis point interest rate cut. The contrasting monetary policies of the Reserve Bank of Australia (RBA), which is committed to higher rates, and the Fed’s easing cycle are expected to shape the pair’s movement in the near term.
The US Dollar is facing downward pressure due to increasing expectations of additional rate cuts by the Fed by the end of 2024. Recent dot plot projections indicate a gradual easing, with the median rate for 2024 revised down to 4.375% from 5.125%.
Fed Chair Jerome Powell stated that the recent aggressive rate cut reflects confidence in maintaining a strong labor market and achieving the inflation target of 2%. Meanwhile, Treasury Secretary Janet Yellen characterized the Fed’s move as a positive sign for the US economy, indicating significant progress in reducing inflation while the job market remains robust.
In Australia, the August employment change showed an increase of 47.5K jobs, significantly above the forecast of 25.0K, while the unemployment rate held steady at 4.2%. This data has led Commonwealth Bank (CBA) to shift its expectation for the RBA’s first rate cut from November 2024 to December 2024, reinforcing a hawkish outlook for the RBA.
Technical analysis of the AUD/USD pair shows it trading near 0.6810, positioned within a rising wedge pattern, suggesting a bullish bias. The 14-day Relative Strength Index (RSI) approaches the 70 mark, indicating ongoing upward momentum.
Looking ahead, the AUD/USD could test the upper boundary of the rising wedge at 0.6870, with a breakout potentially leading to a psychological target of 0.6900. Conversely, if the pair breaks below the lower boundary around 0.6800, it may test support at the nine-day Exponential Moving Average (EMA) at 0.6760, followed by the psychological level of 0.6700.
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