The Australian Dollar (AUD) continues to decline for the second consecutive session on Monday, trading around 0.6600. Despite this downward trend, hawkish comments from the Reserve Bank of Australia (RBA) may limit further losses for the AUD/USD pair. Traders are exercising caution as they await key domestic inflation data set to be released on Wednesday, which could influence the RBA’s monetary policy.
The RBA has indicated that the current cash rate of 4.35% is adequately restrictive to guide inflation within the 2%-3% target range while supporting employment levels. Consequently, the RBA is not expected to consider a rate cut as early as next month.
The US Dollar (USD) is strengthening, bolstered by recent positive economic data that has fueled expectations for a more cautious stance from the Federal Reserve (Fed) in November. The CME FedWatch Tool indicates a 92.8% probability of a 25-basis-point rate cut by the Fed, with no expectations for a larger 50-basis-point reduction.
Recent events surrounding the upcoming US presidential election have also added volatility. Allies of former President Donald Trump have encountered at least 10 court defeats in key battleground states over the past three weeks, potentially impacting the outcome of the November 5 election against Democratic candidate Vice President Kamala Harris.
Additionally, heightened uncertainty in the Middle East has reinforced the safe-haven appeal of the USD. Israel’s recent targeted strikes on Iran, conducted in coordination with Washington and focused on missile and air defense sites, were less aggressive than anticipated.
Recent US economic data has shown positive trends. The Michigan Consumer Sentiment Index rose to 70.5 in October, up from 68.9, surpassing forecasts of 69.0. Durable Goods Orders fell by 0.8% month-over-month in September, a smaller decline than the expected 1.0%. S&P Global’s preliminary October Purchasing Managers Index (PMI) readings indicate positive momentum, with the Composite PMI rising to 54.3 and the Services PMI exceeding expectations at 55.3.
In contrast, Australia’s Judo Bank Composite PMI edged up slightly to 49.8 in October, signaling a second consecutive month of contraction in private sector output. The Services PMI rose to 50.6, marking its ninth consecutive month of expansion, while the Manufacturing PMI dipped to 46.6, continuing its decline.
Technical analysis reveals that the AUD/USD pair is trending lower within a descending channel. The 14-day Relative Strength Index (RSI) is approaching the 30 level, reinforcing the bearish sentiment. Immediate support may be found near the lower boundary of the channel at around 0.6560. Resistance levels are seen at the psychological level of 0.6600, followed by the upper boundary of the channel at 0.6630. A breakout above this level could lead to a test of the nine-day Exponential Moving Average (EMA) at 0.6652.
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