The Australian Dollar (AUD) is retracing recent losses against the US Dollar (USD) on Tuesday, yet struggles amid a surge in US Treasury yields, which rose over 2% on Monday due to signs of economic strength and inflation concerns in the United States.
Support for the AUD is coming from hawkish sentiment surrounding the Reserve Bank of Australia (RBA) and positive employment data, alongside China’s recent rate cuts—significant since China is Australia’s largest trading partner. However, the USD has gained strength as economic data diminishes the likelihood of substantial rate cuts by the Federal Reserve (Fed) in November, with the CME FedWatch Tool indicating an 89.1% chance of a 25-basis-point cut.
Traders are now awaiting Purchasing Managers Index (PMI) reports from both the US and Australia, scheduled for Thursday, as these could influence future monetary policy decisions.
Daily Digest: Australian Dollar Declines Amid Risk Aversion
Currently, the yields on 2-year and 10-year US Treasury bonds stand at 4.02% and 4.19%, respectively. Federal Reserve officials, including Minneapolis Fed President Neel Kashkari, have emphasized a cautious approach to rate cuts, suggesting any easing will be moderate. In Australia, RBA Deputy Governor Andrew Hauser expressed surprise at the robust employment growth and noted the central bank‘s data-driven approach.
The People’s Bank of China has reduced the 1-year Loan Prime Rate to 3.10%, aiming to stimulate domestic economic activity and potentially boost demand for Australian exports. National Australia Bank recently revised its projections for RBA rate cuts, now anticipating the first cut in February 2025, with rates expected to decrease to 3.10% by early 2026.
Recent US economic indicators show retail sales rose by 0.4% in September, while initial jobless claims fell significantly. In Australia, employment surged by 64.1K in September, surpassing expectations, while the unemployment rate held steady at 4.1%.
Technical Analysis: AUD/USD Near Eight-Week Lows
The AUD/USD pair trades around 0.6660 on Tuesday. Technical analysis indicates the pair is below the nine-day Exponential Moving Average (EMA), suggesting a short-term bearish outlook, reinforced by a 14-day Relative Strength Index (RSI) below 50.
On the downside, the pair could test its eight-week low of 0.6622, last seen on September 11, followed by the psychological level of 0.6600. Resistance may be found at the nine-day EMA around 0.6700 and the 50-day EMA at 0.6734; a break above this level could pave the way toward the psychological resistance of 0.6800.
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