The Australian Dollar (AUD) continues its decline against the US Dollar (USD) for the third consecutive day on Wednesday, despite hawkish remarks from Reserve Bank of Australia (RBA) Deputy Governor Sarah Hunter. Hunter reaffirmed the RBA’s commitment to controlling inflation, acknowledging that while inflation expectations remain stable, ongoing price growth poses significant challenges.
Economic Context: AUD Weighed Down by China’s Economic Uncertainty
The AUD is under pressure primarily due to economic uncertainties in its largest trading partner, China. The recently announced fiscal stimulus plan from China has failed to boost market sentiment, with investors questioning the effectiveness and scale of the measures.
Meanwhile, the US Dollar maintains its strength, supported by robust Employment and Consumer Price Index (CPI) data, which have tempered expectations for aggressive easing by the Federal Reserve (Fed). Market anticipations now suggest a total of 125 basis points in rate cuts over the next year, with the CME FedWatch Tool indicating a 94.1% probability of a 25-basis-point rate cut in November, while larger cuts remain off the table.
Daily Digest: Australian Economic Indicators
Australia’s Westpac Leading Index remained stagnant in September, marking the sixth consecutive month of no movement. Additionally, the latest ANZ-Roy Morgan Consumer Confidence index held steady at 83.4, reflecting a longer-term trend where confidence has been below the 85.0 mark for a record 89 weeks. This reading is only slightly above the 2024 weekly average of 82.1.
Federal Reserve Bank of Atlanta President Raphael Bostic commented on the Fed’s interest rate outlook, indicating a projection for only one more 25-basis-point cut this year, contrasting with expectations for larger reductions.
Notably, a report from the Commonwealth Bank of Australia pointed to expectations that the RBA may implement a 25-basis-point rate cut by the end of 2024, further pressuring the AUD. The report emphasized the need for a stronger disinflationary trend for the RBA to consider easing this year.
Geopolitical Tensions and China’s Economic Data
Tensions in the Taiwan Strait have escalated, with China’s military conducting drills, raising concerns among US officials. Taiwan’s Defense Ministry has stated it will refrain from escalating the situation.
In economic terms, China’s National Bureau of Statistics reported that its monthly CPI remained unchanged at 0% in September, down from a 0.4% increase in August. The annual inflation rate rose by 0.4%, falling short of the anticipated 0.6%. Additionally, the Producer Price Index (PPI) decreased by 2.8% year-on-year, a larger drop than the previous decline of 1.8% and exceeding expectations.
Technical Analysis: Bearish Momentum for AUD/USD
The AUD/USD pair is hovering around 0.6680 on Wednesday, indicating a bearish trend. Technical analysis shows that the pair is descending along the upper boundary of a downward channel, with the 14-day Relative Strength Index (RSI) remaining below 50, reinforcing the ongoing bearish sentiment.
Key Levels:
Support: The pair may target its eight-week low of 0.6622, last seen on September 11. A break below this level could lead to a test of the channel’s lower boundary near the psychological support level of 0.6600.
Resistance: On the upside, a break above the channel’s upper boundary at 0.6720 may face initial resistance at the nine-day Exponential Moving Average (EMA) around 0.6738, followed by a key psychological resistance level at 0.6800.
As the Australian Dollar continues to weaken, driven by economic uncertainties in China and mixed signals from the RBA, market participants will be keenly focused on upcoming economic data and geopolitical developments that could further influence the AUD’s trajectory against the US Dollar.
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