The Australian Dollar (AUD) has strengthened following the release of the Melbourne Institute’s Inflation Gauge data on Monday. As the Reserve Bank of Australia (RBA) prepares for its policy meeting on Tuesday, expectations are high that the cash rate will remain at 4.35%, driven by persistently high underlying inflation reflected in the trimmed mean. This anticipated hawkish stance from the RBA supports the Aussie Dollar, contributing to the appreciation of the AUD/USD pair.
The TD-MI Inflation Gauge increased by 0.3% month-over-month in October, a rise from the 0.1% growth recorded in September, marking the highest reading since July and preceding the RBA’s November policy decision. On an annual basis, the gauge rose by 3.0%, up from the previous 2.6%.
In contrast, the US Dollar (USD) weakened after Friday’s release of disappointing US Nonfarm Payrolls (NFP) data for October. Nonetheless, the looming uncertainty surrounding the US presidential election on November 5 may drive safe-haven flows, providing some support for the Greenback.
Market participants are closely watching the upcoming Federal Reserve (Fed) policy meeting, with predictions of a modest 25 basis point rate cut this week. The CME FedWatch Tool indicates a 99.6% probability of this quarter-point reduction occurring in November.
In domestic news, ANZ reported that job advertisements in Australia rose by 0.3% month-over-month in October, a deceleration from the upwardly revised 2.3% increase in September. This marks the second consecutive month of growth, albeit at a slower pace.
On the international front, China’s Commerce Minister Wang Wentao met with Australia’s Trade Minister Don Farrell on Sunday, expressing hopes for improvements in Australia’s business environment to ensure fair treatment of Chinese firms.
Political developments in the US show Vice President Kamala Harris leading slightly in Nevada, North Carolina, and Wisconsin, while former President Donald Trump holds a narrow lead in Arizona, according to the final New York Times/Siena College poll. The survey, conducted from October 24 to November 2, highlights close races in key battleground states like Michigan, Georgia, and Pennsylvania, with all matchups within a 3.5% margin of error.
The US Bureau of Labor Statistics (BLS) reported that October’s Nonfarm Payrolls increased by just 12,000, following a downwardly revised gain of 223,000 in September, significantly missing the market expectation of 113,000. The unemployment rate remained steady at 4.1%, aligning with forecasts.
In Australia, the Producer Price Index (PPI) rose by 0.9% quarter-over-quarter in Q3, surpassing market expectations of a 0.7% increase and following a 1.0% rise in the previous quarter. This marks the 17th consecutive period of producer inflation, although annual PPI growth slowed to 3.9% in Q3 from 4.8% in the prior quarter.
Meanwhile, China’s Caixin Manufacturing Purchasing Managers Index (PMI) climbed to 50.3 in October, up from 49.3 in September and exceeding the expected 49.7. Given China’s significance as a key trade partner for Australia, fluctuations in the Chinese economy could greatly impact Australian markets.
In the US, the Personal Consumption Expenditures (PCE) Price Index indicated a year-over-year core inflation increase of 2.7% in September. Additionally, initial jobless claims fell to a five-month low of 216,000 for the week ending October 25, pointing to a resilient labor market and lessening expectations for immediate rate cuts by the Fed.
Australian Retail Sales showed a slight increase of 0.1% month-over-month in September, below the expected 0.3% and a drop from the previous month’s 0.7% growth. However, quarterly sales rose by 0.5% in Q3, rebounding from a 0.3% decline in Q2.
Technical Analysis: The AUD/USD trades near the 0.6600 level on Monday, with daily charts indicating a potential easing of bearish pressure as the pair tests the nine-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) remains below 50, and a move above this threshold could signal a shift from bearish to bullish momentum.
Resistance for the AUD/USD is positioned at the nine-day EMA at 0.6602, with further resistance at the 14-day EMA of 0.6625. A breakout above these levels could enhance the pair’s strength, potentially targeting the psychological level of 0.6700. On the downside, immediate support is seen at the three-month low of 0.6536, and a drop below this point may lead the pair toward the key psychological level of 0.6500.
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