The Australian Dollar (AUD) extended its rally for the third consecutive session on Monday, buoyed by weakening US Dollar (USD) sentiment and despite mixed economic data from China, Australia’s key trading partner. Rising expectations that the US Federal Reserve may ease its policy stance in November are further supporting the AUD/USD pair.
In China, the Caixin Manufacturing Purchasing Managers’ Index (PMI) dropped to 49.3 in September, signaling contraction from August’s 50.4 reading. Meanwhile, the Caixin Services PMI also fell sharply, declining to 50.3 from 51.6 in August, reflecting a slowdown in the services sector. However, despite these weak numbers, the AUD continues to benefit from broader market trends.
The USD faced downward pressure after the release of the US Core Personal Consumption Expenditures (PCE) Price Index for August, which rose by only 0.1% month-over-month, missing expectations of 0.2%. This data aligns with the Federal Reserve’s view that inflation is easing, increasing the likelihood of an aggressive rate-cutting cycle. According to the CME FedWatch Tool, the odds of a 25 basis point rate cut by the Fed in November stand at 42.9%, while the probability of a 50 basis point cut has risen to 57.1%, up from 50.4% a week ago.
Market Movers: AUD Gains on RBA’s Hawkish Stance and Chinese Stimulus Hopes
China’s official Manufacturing PMI showed a slight improvement, rising to 49.8 in September from 49.1 in August, beating the expected 49.5. However, its Non-Manufacturing PMI fell to 50.0, missing expectations. Despite these mixed signals, China’s plans to inject over CNY 1 trillion into its largest state banks offer hope for economic stability, lending indirect support to the AUD.
The Reserve Bank of Australia‘s (RBA) hawkish stance also bolsters the AUD. The RBA has maintained its cash rate at 4.35% for the seventh straight meeting and signaled that restrictive monetary policy will continue to curb inflation. Furthermore, Australian Treasurer Jim Chalmers, during his visit to China, highlighted the importance of China’s new stimulus measures amid its economic slowdown, which he described as a key factor affecting global growth.
In the US, St. Louis Federal Reserve President Alberto Musalem suggested that the Fed could begin cutting rates “gradually” after a larger-than-usual reduction at the September meeting. Musalem’s comments, combined with signs of slowing inflation, further fueled expectations of a potential easing in Fed policy.
Technical Outlook: AUD/USD Eyes Key Resistance Amid Bullish Momentum
The AUD/USD pair traded near 0.6920 on Monday, within an ascending channel pattern on the daily chart. The pair remains above the lower boundary of the channel, suggesting continued bullish momentum. The 14-day Relative Strength Index (RSI) remains above 50, reinforcing the positive sentiment.
The AUD/USD pair could face resistance near the 0.7000 level, the upper boundary of the ascending channel. A successful break above this level may signal further upside potential. Conversely, a failure to breach this resistance could trigger a pullback within the channel.
On the downside, a break below the lower boundary at 0.6920 could weaken the bullish outlook, leading the pair toward the nine-day Exponential Moving Average (EMA) at 0.6853. Further selling pressure could drive the pair toward its six-week low of 0.6622.
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