The Australian dollar is holding close to nine-month highs ahead of the RBA’s policy decision

• The Australian dollar remains firm near a nine-month high of 0.6839 as the RBA is expected to hold current rates at 4.35%.
• The ANZ-Roy Morgan Australia consumer confidence index rose 0.8 points this week to 84.9.
• The US dollar faces challenges as Fed policymakers project further interest rate cuts totaling 50 basis points in 2024.

The Australian dollar (AUD) inches higher against the US dollar (USD) ahead of the Reserve Bank of Australia’s (RBA) policy decision scheduled for Tuesday. The RBA is expected to keep the official cash rate (OCR) at 4.35%, citing strong labor market conditions and persistent inflationary pressures. Market projections suggest there is no rate cut before December, with some analysts predicting the first adjustment could not happen until February or even the second quarter of 2025.

The ANZ-Roy Morgan Australia consumer confidence index rose 0.8 points to 84.9 this week. Despite this increase, consumer confidence has now remained below the 85.0 mark for 86 consecutive weeks. On a year-over-year basis, the index is up 8.5 points from 76.4.

The US dollar (USD) could face challenges as Federal Reserve (Fed) officials forecast a further 50 basis point (bps) interest rate cuts in 2024, following an aggressive 50 basis point cut last week. Supporting that outlook, Minneapolis Fed President Neel Kashkari said on Monday that he expects and supports further rate cuts next year, according to Reuters.

Daily Digest Market Movers: Australian Dollar Holds Ground on Sentiment Surrounding the RBA

• According to CME’s FedWatch tool, markets are pricing in a 50% chance the Fed will cut 75 basis points to a range of 4.0-4.25% by the end of this year.
• The S&P Global Composite Purchasing Managers Index (PMI) rose at a slower pace in September, registering 54.4 compared to 54.6 in August. The manufacturing PMI unexpectedly fell to 47.0, indicating a contraction, while the services PMI expanded more than expected to 55.4.
• Chicago Fed President Austan Goolsbee noted, “A lot more rate cuts are probably needed over the next year, rates have to come down significantly.” Additionally, Atlanta Fed President Raphael Bostic said on Monday that the US economy is close to normal rates of inflation and unemployment, and the central bank also needs monetary policy to “normalise”, according to Reuters.
• The People’s Bank of China (PBoC) injected CNY 74.5 billion in liquidity into the banking system through a 14-day reverse repo, the rate lowered to 1.85% from 1.95%. In addition, China’s central bank also injected CNY160.1 billion in liquidity through a 7-day reverse repo, with the rate unchanged at 1.7%.
• Australian Treasurer Jim Chalmers is working to establish a new monetary policy board at the Reserve Bank of Australia, but needs the support of the Green Party to move forward. The Greens have said they will only support changes to the RBA if there is a commitment to cut interest rates.
• Australia’s Judo Bank composite PMI fell to 49.8 in September from 51.7 in August, pointing to a contraction in business activity as slower growth in the services sector failed to offset a deeper decline in manufacturing output. The services PMI fell to 50.6 in September from 52.5 previously, while the manufacturing PMI fell to 46.7 from 48.5 in August.
• The Commonwealth Bank (CBA) has adjusted its expectations for the Reserve Bank of Australia’s first rate cut by 25 basis points, moving it from November 2024 to December 2024. This change follows a robust employment rate and a continued “solicitous” outlook from the central bank. , according to Yahoo Finance.
• Labor change in Australia came in at 47.5K in August, down from 48.9K (revised from 58.2K) in July, but well above the consensus forecast of 25.0K. The unemployment rate was steady at 4.2% in August, in line with both expectations and the previous month’s figure, according to data released by the Australian Bureau of Statistics (ABS).
• Reserve Bank of Australia (RBA) Governor Michele Bullock stressed it was premature to consider rate cuts given persistently high inflation. In addition, RBA Deputy Governor Sarah Hunter noted that while the labor market remains tight, wage growth appears to have peaked and is expected to slow further.

Technical analysis: The Australian dollar is hovering around a nine-month high near 0.6850

AUD/USD is trading near 0.6840 on Tuesday. Technical analysis of the daily chart indicates that the pair is moving up within the ascending channel pattern, suggesting an upward bias. Additionally, the 14-day Relative Strength Index (RSI) is positioned above 50, confirming the ongoing bullish trend.

AUD/USD is currently testing the nine-month high of 0.6839, last touched on September 19. A break above this level could lead the pair to the upper limit of the ascending channel around 0.6910.

On the downside, the AUD/USD pair could find support at the lower boundary of the ascending channel, which coincides with the nine-day exponential moving average (EMA) at 0.6788. The next significant support is at the psychological level of 0.6700. A break below this level could push the pair further down towards the six-week low of 0.6622.

AUD/USD: Daily chart