The Australian Dollar (AUD) experienced a decline against the US Dollar (USD) on Wednesday, following a weaker-than-expected Monthly Consumer Price Index (CPI) report. Nevertheless, the AUD found some support as China, its largest trading partner, announced new stimulus measures aimed at bolstering its economy.
On Tuesday, the Reserve Bank of Australia (RBA) maintained the Official Cash Rate (OCR) at 4.35%, which provided a degree of support for the Australian Dollar. RBA Governor Michele Bullock stated during the post-meeting press conference that rates would remain on hold for the time being and clarified that a rate hike was not explicitly on the agenda.
Meanwhile, the People’s Bank of China (PBOC) has taken steps to stimulate its economy. PBOC Governor Pan Gongsheng announced on Tuesday a 50 basis point reduction in the reserve requirement ratio (RRR). The central bank also lowered the seven-day repo rate from 1.7% to 1.5% and cut the one-year Medium-term Lending Facility (MLF) rate from 2.30% to 2.0%—a move following a prior reduction in July 2024.
Market Dynamics: Australian Dollar Faces Headwinds Despite RBA’s Stance
In addition, Australian Treasurer Jim Chalmers is set to visit China this week to strengthen economic ties between the two nations, emphasizing the importance of engaging with key Chinese officials.
In a recent note, JP Morgan highlighted that investors should keep an eye on commodities and bond yields in light of China’s stimulus measures. The bank noted that global growth is receiving a fresh boost from these initiatives, which could reduce recession risks and positively influence market sentiment, although it also warned of potential reinflation risks.
Australia’s Monthly CPI rose 2.7% year-over-year in August, a decrease from the previous 3.5% rise and below the expected 2.8% increase. Meanwhile, the US Consumer Confidence Index fell sharply to 98.7 in September from a revised 105.6 in August—the largest decline since August 2021.
The ANZ-Roy Morgan Consumer Confidence Index in Australia saw a slight uptick, rising by 0.8 points to 84.9 this week, but has remained below the 85.0 mark for 86 consecutive weeks.
Technical Analysis: AUD/USD Approaches Resistance Levels
The AUD/USD pair is currently trading around 0.6890. Technical analysis suggests that the pair is on an upward trajectory within an ascending channel, indicating a bullish bias. The 14-day Relative Strength Index (RSI) has approached the 70 mark, signaling potential upward momentum but also indicating that consolidation may be imminent.
Resistance for the AUD/USD pair may test the upper boundary of the ascending channel at approximately 0.6930, followed by the psychological level of 0.6950. On the downside, the pair could find support at the lower boundary of the ascending channel, aligning with the nine-day Exponential Moving Average (EMA) at 0.6816. A break below this support could lead the pair toward its next significant support level at 0.6700, potentially pushing it down to a six-week low of 0.6622.
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