Australian Dollar Reaches Nine-Month High as RBA Maintains Interest Rate

Summary:

Australian dollar has achieved a notable nine-month high due to the RBA's decision to maintain interest rates amid persistent inflation.

BUY AUDUSD

Close Time

CLOSED

0.68401

Entry Price

0.69650

0.67800

0.71563 -0.00097 -0.14%

41.3

Pips

Profit

0.67800

0.68814

Exit Price

0.68401

Entry Price

0.69650

The Australian dollar has surged to a fresh nine-month high of 0.6859 following the Reserve Bank of Australia's (RBA) decision to keep its Official Cash Rate steady at 4.35% for September. This move reflects the RBA's commitment to maintaining a balanced monetary policy amidst robust labor market conditions and ongoing inflationary pressures. In contrast, the U.S. dollar faces a challenging outlook as Federal Reserve policymakers project additional interest rate cuts in 2024.

The RBA’s decision to hold the cash rate comes amid persistent inflation that remains above the target level, underscoring the board's determination to steer inflation back within the RBA's desired range. Governor Michele Bullock, during a post-policy announcement press conference, remarked that recent economic data had not substantially altered the RBA's policy stance. She indicated that, for the time being, the board is keeping the option of a rate hike off the table.

In the realm of consumer sentiment, the ANZ-Roy Morgan Australia Consumer Confidence Index increased by 0.8 points to 84.9 this week. Despite this uptick, consumer confidence has lingered below the 85.0 threshold for an extended 86 weeks. Year-over-year comparisons reveal an increase of 8.5 points from last year's figure of 76.4, reflecting a gradual recovery in consumer sentiment despite ongoing economic challenges.

Meanwhile, the U.S. dollar appears to be under pressure as Federal Reserve officials are forecasting further rate cuts totaling 50 basis points in 2024, following an aggressive 50 basis point reduction last week. Minneapolis Fed President Neel Kashkari articulated his expectation for additional rate cuts, supporting the narrative of a dovish shift within the Federal Reserve.

Recent market movements indicate a 50% probability that the Fed will reduce rates by 75 basis points to a range of 4.0% to 4.25% by the end of this year, according to the CME FedWatch Tool. Compounding these challenges for the U.S. dollar, the S&P Global U.S. Composite Purchasing Managers Index (PMI) showed slower growth in September, recording a value of 54.4, down from 54.6 in August. Notably, the Manufacturing PMI dropped unexpectedly into contraction territory at 47.0, while the Services PMI expanded to 55.4, exceeding expectations.

Federal Reserve officials, including Chicago Fed President Austan Goolsbee, have expressed the need for more rate cuts in the coming year, emphasizing that the current rates must decrease significantly. Atlanta Fed President Raphael Bostic echoed these sentiments, noting that the U.S. economy is approaching normalized inflation and unemployment rates, suggesting that monetary policy should also undergo a normalization process.

In the Asian market, the People's Bank of China (PBoC) took action to inject liquidity into the banking system, providing CNY 74.5 billion through a 14-day reverse repo, lowering the rate to 1.85% from 1.95%. Additionally, CNY 160.1 billion was injected via a 7-day reverse repo at a steady rate of 1.7%.

On the domestic front, Australian Treasurer Jim Chalmers is working towards establishing a new monetary policy board at the RBA, seeking support from the Greens Party. The Greens have stated they will only endorse changes at the RBA if there is a commitment to lowering interest rates.

Business activity in Australia has seen a decline as Judo Bank's Composite PMI fell to 49.8 in September, down from 51.7 in August, indicating a contraction in overall business conditions. The Services PMI decreased to 50.6, while the Manufacturing PMI dropped to 46.7, reflecting a deepening slump in manufacturing output that overshadowed gains in the services sector.

Commonwealth Bank has revised its expectation for the first RBA rate cut, moving it from November 2024 to December 2024, in response to strong employment data and the RBA's hawkish outlook. The Australian Bureau of Statistics reported that the Employment Change for August stood at 47.5K, a slight decline from July's revised figure of 48.9K, yet significantly above the consensus forecast of 25.0K. The Unemployment Rate remained stable at 4.2%, aligning with both expectations and the previous month’s figures.

Governor Bullock reiterated that it remains premature to contemplate rate cuts given the ongoing inflation challenges. Assistant Governor Sarah Hunter highlighted that while the labor market continues to exhibit strength, wage growth seems to have reached its peak and is expected to decelerate.

Technical Analysis

In terms of technical analysis, the AUD/USD has shown signs of bullish momentum, currently approaching a crucial resistance level at 0.6870. The pair is consistently operating within a bullish channel, supporting the likelihood of breaching this key level and paving the way for further gains in both intraday and short-term trading contexts. Should the bullish trend persist, the next target could reach as high as 0.6965.

For the foreseeable future, the bullish trend remains intact, contingent on the price maintaining stability above the support level of 0.6810. The anticipated trading range for today is set between the support at 0.6810 and resistance at 0.6910.

TRADE RECOMMENDATION

BUY AUDUSD

ENTRY PRICE: 0.6840

STOP LOSS: 0.6780

TAKE PROFIT: 0.6965

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Australian Dollar Reaches Nine-Month High as RBA Maintains Interest Rate

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