Australian dollar pars gains on monthly consumer price index

• The Aussie may regain ground on a hawkish sentiment around the RBA.
• Australia’s monthly consumer price index rose 2.7% from a year ago in August, below the expected 2.8% increase and the previous increase of 3.5%.
• The Fed’s Bowman urged caution on central bank rate cuts, citing inflation indicators above the 2 percent target.

The Australian dollar (AUD) gave up its intraday gains against the US dollar (USD) after a weaker-than-expected monthly consumer price index report on Wednesday. However, the commodity-linked Aussie found support as China, its biggest trading partner, announced a new round of stimulus measures.

The Reserve Bank of Australia (RBA) kept the official cash rate (OCR) at 4.35% on Tuesday, providing support for the Australian dollar and supporting the AUD/USD pair. During the press conference following the policy decision, RBA Governor Michele Bullock confirmed that rates would remain on hold for now and clarified that a rate hike was not explicitly considered during the meeting.

People’s Bank of China (PBOC) Governor Pan Gongsheng announced on Tuesday that China will cut its reserve requirement ratio (RRR) by 50 basis points (bps). Gongsheng also noted that the central bank will reduce the 7-day repo rate from 1.7% to 1.5% and reduce the down payment for secondary houses from 25% to 15%. In addition, the PBOC cut the one-year medium-term lending rate (MLF) from 2.30% to 2.0% on Thursday, following the last cut in July 2024, when the rate was cut from 2.50%.

Daily Digest Market Movers: Aussie Dollar Remains Strong Thanks to a Dovish RBA

• Australia’s monthly consumer price index rose 2.7% year-on-year in August, down from a previous increase of 3.5% and a 2.8% increase expected.
• Federal Reserve Governor Michelle Bowman said on Tuesday that key inflation indicators were still “uncomfortably above” the 2 percent target, urging caution as the Fed moves forward with interest rate cuts. Despite this, she expressed her preference for a more conventional approach, arguing for a quarter percentage point reduction.
• The US consumer confidence index fell to 98.7 in September from a revised 105.6 in August. This figure marked the biggest drop since August 2021.
• 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 S&P Global US 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.
• 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.

Technical analysis: The Australian dollar is rising near 0.6900, the upper limit of the ascending channel

AUD/USD is trading near 0.6890 on Wednesday. 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) advanced towards the 70 mark, suggesting that upside gains remain likely, but could soon face a consolidation.

In terms of resistance, the AUD/USD pair could test the upper limit of the ascending channel around the 0.6930 level, followed by the psychological level of 0.6950.

AUD/USD could find support at the lower boundary of the ascending channel, which coincides with the nine-day exponential moving average (EMA) at 0.6816. 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