Australian dollar remains risk averse, focusing on Australian PMI

• AUD/USD slips as geopolitical tensions weigh on risk sentiment.
• US private employment data improves as Richmond Fed President Barkin warns inflation remains a concern despite recent interest rate cuts.
• Traders focus on upcoming Australian PMI data, RBA focused on high inflation.

The Australian dollar (AUD) is showing minimal losses against the greenback at the end of the North American session on Wednesday after hitting a daily high of 0.6915. Risk aversion boosted the outlook for some safe-haven currencies on the prospect of Israel retaliating after Iran’s missile attack on Tuesday. AUD/USD is trading at 0.6882, basically unchanged.

The Antipodeans remained under pressure due to geopolitical tensions. The Greenback was therefore boosted as Israel’s envoy to the United Nations warned of a possible attack. At the same time, a senior US State Department official revealed that the US is also weighing a response to Iran’s attack.

US data was positive, private employment improved in September. Richmond Fed President Thomas Barkin reiterated that despite “aggressively” cutting rates by 50 basis points (bps) in September, they have not won the fight against inflation.

On the Aussie front, traders are eyeing the release of the Judo Bank and September Composite PMI, with the former expected to cool sharply, though still in bullish territory. The Reserve Bank of Australia (RBA) remained cautious about inflation being too high, failing to give any indication of the start of its easing cycle.

Earlier, the Australian Bureau of Statistics (ABS) revealed that retail sales on Tuesday were better than expected, justifying the RBA’s stance of keeping rates higher.

Daily market reasons: Aussie on back foot after US jobs data

• ADP national employment change for September was 143,000, up from an upwardly revised 103,000 the previous month, beating the forecast of 120,000.
• Market participants placed the odds of a 25 bps Fed rate cut at 64 percent, while the odds of a more significant 50 bps cut fell to 36 percent, according to CME’s FedWatch tool.
• Australia’s Judo Bank Services PMI is expected to fall from 52.5 to 50.6 in September. The most recent composite PMI reading was 51.7. A lower-than-expected reading would suggest a deterioration in business activity.
• The latest Australian retail sales fared better than expected, crushing July’s 0.4% rise and rising 0.7% in August.
• Tuesday’s retail sales, Australia’s leading indicator of consumer spending, rose 0.7% in August. This beat market expectations for a 0.4% increase.
• China’s business activity has deteriorated, leading to increased stimulus from the People’s Bank of China (PBoC) and the Politburo.
• To stimulate the economy, the PBoC cut lending rates, reduced banks’ reserve capital requirements and even reduced property down payments. If China’s economy continues to post deflationary readings, it could miss its 5% Gross Domestic Product (GDP) target for 2024.

Technical outlook: The Australian dollar will bounce back in the short term before challenging 0.6900

AUD/USD is set to extend its losses after failing to sustain gains above the 0.6900 mark. Although momentum suggests buyers are in charge, the Relative Strength Index (RSI) is targeting a near-term decline. Therefore, AUD/USD is biased to the downside before resuming the ongoing uptrend.

AUD/USD could test the 28 December 2023 high which turned support at 0.6871 on further weakness. Once surrendered, the next stop would be the October 1, 2024 low of 0.6856 before challenging 0.6800.

However, if AUD/USD aims higher and closes above 0.6900, look for a retest of the all-time high of 0.6934.