The Australian Dollar (AUD) dipped slightly against the US Dollar (USD) on Thursday. However, the AUD/USD pair experienced modest gains as the US Dollar softened due to a slight decline in US Treasury yields. The AUD may find support from the hawkish stance of the Reserve Bank of Australia (RBA).
Earlier this week, RBA Deputy Governor Andrew Hauser emphasized the strength of Australia’s labor participation rate, noting that while the RBA relies on data, it does not become overly fixated on it.
The US Dollar has gained traction as traders closely monitor the Federal Reserve’s interest rate outlook, with rising expectations that the central bank will be less aggressive in lowering rates than previously anticipated. Furthermore, the Greenback is buoyed by speculation regarding a potential second term for former President Donald Trump in the upcoming US presidential election. On Friday, traders are expected to pay attention to US Durable Goods Orders and the Michigan Consumer Sentiment Index.
During an event in Las Vegas, Trump revived his iconic catchphrase, asserting, “Under the Trump administration, we’re going to build an economy that lifts up all Americans, including African Americans, Hispanic Americans, and also members of our great Asian American and Pacific Islander community, many of whom are here today,” as reported by Reuters.
Market indicators reveal a 97% probability of a 25-basis-point rate cut by the Fed in November, with no expectation for a larger cut. Meanwhile, Vice President Kamala Harris received support from rock icon Bruce Springsteen, entertainer Tyler Perry, and former President Barack Obama at a rally in Georgia, which drew thousands of supporters in this crucial battleground state.
S&P Global has released preliminary readings for the October US Purchasing Managers Index (PMI), showing positive momentum across various sectors. The Composite PMI increased to 54.3, up from 54.0, with the Services PMI exceeding expectations at 55.3, compared to the forecasted 55.0. The Manufacturing PMI also outperformed at 47.8, surpassing the expected 47.5 and improving from the previous reading of 47.3.
In Australia, the Judo Bank Composite PMI rose slightly to 49.8 in October from 49.6 in September, indicating a second consecutive month of contraction in private sector output. The Services PMI edged up to 50.6 from 50.5, marking its ninth straight month of expansion, while the Manufacturing PMI fell to 46.6 from 46.7, continuing its downward trend.
The Federal Reserve’s Beige Book report on Wednesday indicated that economic activity remained “little changed” across nearly all districts, contrasting with August’s report, which noted growth in three districts.
Federal Reserve Bank of San Francisco President Mary Daly expressed optimism in a post on X, stating that the economy is in a better position, with significant reductions in inflation and a labor market moving towards sustainability. Meanwhile, Federal Reserve Bank of Minneapolis President Neel Kashkari highlighted the need for investors to anticipate a gradual pace of rate cuts over the upcoming quarters, suggesting that any monetary easing would be moderate rather than aggressive.
In related news, the People’s Bank of China (PBoC) lowered the 1-year Loan Prime Rate (LPR) to 3.10% from 3.35% and the 5-year LPR to 3.60% from 3.85%, aligning with expectations. These reductions in borrowing costs are expected to stimulate domestic economic activity in China, potentially boosting demand for Australian exports.
National Australia Bank has revised its outlook for the Reserve Bank of Australia (RBA), anticipating the first rate cut in February 2025, earlier than previously expected in May. The bank forecasts a gradual decline, with rates projected to reach 3.10% by early 2026.
Technical Analysis: The AUD/USD pair is trading around 0.6640 on Thursday, with daily chart indicators suggesting a short-term bearish trend. The pair remains below the nine-day Exponential Moving Average (EMA), and the 14-day Relative Strength Index (RSI) is below 50, reinforcing the bearish outlook.
The AUD/USD pair is testing a two-month low of 0.6614, reached on Wednesday, with the next major support level at the psychological threshold of 0.6600. On the upside, resistance is expected at the nine-day EMA at 0.6672, followed by the 50-day EMA at 0.6724. A breakout above these resistance levels could lead to a potential rally towards the psychological barrier of 0.6800.
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