The Australian Dollar (AUD) remains under pressure against the US Dollar (USD) on Tuesday, struggling to gain traction following disappointing trade balance data from China, Australia’s largest trading partner. Additionally, China’s recently announced fiscal stimulus plan has not instilled confidence in investors, who remain uncertain about the scale of the package.
The latest weekly survey of Consumer Confidence revealed minimal movement, with the ANZ-Roy Morgan Consumer Confidence index holding steady at 83.4 this week. Although this figure has not changed, it marks a record 89 consecutive weeks below the 85.0 threshold. Nevertheless, it is 1.3 points higher than the weekly average of 82.1 for 2024.
Support for the US Dollar has increased due to rising expectations that the Federal Reserve will not pursue aggressive interest rate cuts. According to the CME FedWatch Tool, markets currently price in an 83.6% probability of a 25-basis-point rate cut in November, with no expectation for a larger 50-basis-point reduction.
Market Highlights:
Federal Reserve Bank of Minneapolis President Neel Kashkari reassured markets late Monday by emphasizing the Fed‘s data-driven approach, highlighting the strength of the US economy and a robust labor market, despite a slight increase in the overall unemployment rate.
The Commonwealth Bank of Australia‘s analysis indicated that the Reserve Bank of Australia (RBA) is expected to implement a 25-basis-point rate cut by the end of 2024, exerting additional downward pressure on the AUD.
The risk-sensitive AUD/USD pair has been further weighed down by escalating tensions in the Middle East, particularly following a drone attack that killed four Israeli soldiers and injured over 60.
Tensions also heightened in the Taiwan Strait as China conducted military drills. The US Department of State expressed serious concerns regarding the actions of the People’s Liberation Army (PLA), while Taiwan’s Defense Ministry assured that they would not escalate the conflict.
The National Bureau of Statistics of China reported stagnant Consumer Price Index (CPI) growth of 0% in September, down from a 0.4% increase in August. The annual inflation rate rose by 0.4%, missing expectations of 0.6%. Additionally, the Producer Price Index (PPI) fell by 2.8% year-on-year, exceeding expectations of a 2.5% decline.
The National People’s Congress expressed optimism after a briefing from China’s Ministry of Finance, which emphasized key priorities, including stabilizing the property market and addressing local government debt. The ministry indicated that special bonds would be issued to support bank recapitalization and stabilize the real estate sector.
Chicago Fed President Austan Goolsbee praised progress in inflation and the labor market, noting no signs of economic overheating despite a positive jobs report for September.
Last week, the Reserve Bank of Australia released minutes from its September monetary policy meeting, suggesting that board members considered various scenarios for both raising and lowering interest rates in the future.
Technical Analysis: The AUD/USD pair is currently hovering around 0.6730, testing the upper boundary of a descending channel pattern on the daily chart. A breakout above this level could indicate a shift in momentum from bearish to bullish. However, the 14-day Relative Strength Index (RSI) remains below the 50 mark, suggesting continued bearish momentum.
Should the AUD/USD pair break above the descending channel, it may face initial resistance at the nine-day Exponential Moving Average (EMA) near the 0.6758 level, followed by significant psychological resistance at 0.6800.
On the downside, the AUD/USD pair could target the lower boundary of the descending channel around the 0.6630 level, with additional support at the eight-week low of 0.6622, last seen on September 11.
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