The Australian Dollar (AUD) held its ground against the US Dollar (USD) on Monday, despite the release of weaker Purchasing Managers Index (PMI) data. The resilience of the AUD/USD pair is attributed in part to the People’s Bank of China (PBoC) injecting liquidity into the banking system, highlighting the significant impact of the Chinese economy on Australian markets.
The PBoC added CNY 74.5 billion in liquidity via a 14-day reverse repo, lowering the rate from 1.95% to 1.85%. Additionally, it injected CNY 160.1 billion through a 7-day reverse repo, maintaining the rate at 1.7%.
The Australian Dollar may also gain traction ahead of the Reserve Bank of Australia’s (RBA) interest rate decision scheduled for Tuesday. The RBA is expected to keep the Official Cash Rate (OCR) steady at 4.35%, buoyed by strong labor market data and persistent inflationary pressures.
Conversely, the US Dollar could face downward pressure as Federal Reserve (Fed) officials forecast potential rate cuts of 50 basis points (bps) in 2024, following last week’s aggressive 50 bps cut, which lowered rates to a range of 4.75-5.00%. Traders are eagerly awaiting US PMI data to be released later in the North American session.
Market Movers: AUD Remains Firm Amid RBA Sentiment
Australian Treasurer Jim Chalmers is seeking to establish a new monetary policy board at the RBA, contingent on support from the Greens Party, who have stated they will only back changes if there’s a commitment to lowering interest rates.
Philadelphia Fed President Patrick Harker recently noted that the US central bank has adeptly navigated a challenging economic landscape, comparing monetary policy to driving a bus, where balance is crucial.
Australia’s Judo Bank Composite PMI fell to 49.8 in September from 51.7 in August, signaling a contraction in business activity, largely driven by a slowdown in the services sector and a deeper slump in manufacturing. The Services PMI decreased to 50.6, while the Manufacturing PMI dropped to 46.7.
In recent developments, the PBoC opted to keep its one-year and five-year Loan Prime Rates (LPRs) unchanged at 3.35% and 3.85%, respectively. Commonwealth Bank (CBA) has also revised its expectations for the first RBA rate cut, pushing it from November 2024 to December 2024, reflecting a robust employment rate and a hawkish outlook.
In August, Australian Employment Change was reported at 47.5K, surpassing the consensus forecast of 25.0K, while the Unemployment Rate remained steady at 4.2%. RBA Governor Michele Bullock emphasized that it is premature to consider rate cuts, given the high inflation, and RBA Assistant Governor Sarah Hunter noted that while the labor market remains tight, wage growth may have peaked.
Technical Analysis: AUD/USD Tests Key Support Levels
As of Monday, the AUD/USD pair is trading near 0.6820. Technical analysis indicates that the pair is testing the lower boundary of an ascending channel, suggesting a weakening bullish bias. However, with the 14-day Relative Strength Index (RSI) still above 50, further price movement in this area will clarify the trend.
Currently, the pair is testing the lower boundary near the recent nine-month high of 0.6839 reached on September 19. A bounce above this level could propel the pair toward the upper boundary of the ascending channel, around 0.6890.
On the downside, support may be found around the nine-day Exponential Moving Average (EMA) at 0.6771, with the next key support at the psychological level of 0.6700. A break below this level could lead the pair to test its six-week low at 0.6622.
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