Australian dollar extends decline as traders brace for US CPI data

• The Australian dollar remains under selling pressure in the Asian session on Thursday.
• A firmer USD and lack of further Chinese stimulus is dragging the pair lower.
• US CPI inflation data will be in focus on Thursday.

The Australian dollar (AUD) extends its decline on Thursday. A stronger US dollar (USD) amid growing speculation of a 25 basis point (bps) rate cut by the Federal Reserve (Fed) in November is undermining Australia. Moreover, Beijing’s attempt to boost the world’s second largest economy disappointed investors as China’s main economic planning authority failed to announce additional measures to improve weak growth. It is worth noting that China is an important trading partner for Australia and concerns about China’s sluggish economy tend to have a negative impact on the value of the AUD.

Investors will closely monitor key US Consumer Price Index (CPI) inflation data due later on Thursday. US headline CPI is expected to show an increase of 2.3% year-on-year in September, while core CPI inflation is expected to show an increase of 3.2% year-on-year in the same reporting period. However, if the report shows a weaker-than-expected result, this could open the door for a jumbo Fed rate cut, which could hurt the USD and limit downside for AUD/USD.

Daily Digest Market Movers: Aussie eases ahead of US CPI data

• The RBA’s minutes of the September meeting showed that board members had overlooked the warning that there would be no rate cuts in the near future. Australia’s central bank wants to keep its options open, watching if the economy starts to recover in the second half of the year.
• “This leaves the door open to a move to neutral by the end of this year and then a cut in early 2025. We still expect the first cash rate cut in February 2025,” ANZ analysts noted.
• The World Bank forecast China’s growth rate to slow to 4.3 percent in 2025, down from 4.8 percent expected this year, in an economic update on Tuesday.
• San Francisco Fed President Mary Daly said on Wednesday that one or two more interest rate cuts were possible this year if the economy performed as she expected, adding that she was now “quite confident” that inflation was moving toward its target of 2% of the Fed.
• Boston Fed President Susan Collins said on Wednesday that with inflation trends weaker, it is highly likely that the Fed will be able to offer more interest rate cuts.
• Markets are pricing in nearly 80% odds of a 25 basis point (bps) Fed rate cut in November, up from 31.1% last week, according to CME’s FedWatch tool.

Technical Analysis: Australian Dollar Remains Vulnerable Near Key Support Level

The Australian dollar weakens that day. Technically, the AUD/USD bullish outlook looks vulnerable as the pair is hovering around the lower boundary of the uptrend channel and 100-day exponential moving average (EMA) on the daily chart. If AUD/USD breaks below said levels, this could resume downside. Bearish momentum is bolstered by the 14-day Relative Strength Index (RSI), which is below the midline near 41.20.

Crucial support level for AUD/USD appears at 0.6700 representing the lower boundary of the trend channel, 100-day EMA and psychological level. A breach of this level could open the way to 0.6622, the 9/11 low.

On the other hand, the September 6 high at 0.6767 acts as an immediate resistance level for the pair. Further north, the next upside barrier is seen at 0.6823, the August 29 high, followed by 0.6942, the September 30 high.