The Australian Dollar (AUD) is gaining strength against the US Dollar (USD), despite weaker Purchasing Managers Index (PMI) data being released recently. The AUD/USD pair is showing signs of appreciation due to the People’s Bank of China (PBoC) injecting liquidity into the banking system. As Australia’s close trade partner, developments in the Chinese economy often have a significant impact on Australian markets.
The PBoC recently injected CNY 74.5 billion in liquidity into the banking system through a 14-day reverse repo, with the rate lowered to 1.85% from 1.95%. Additionally, they also injected CNY 160.1 billion through a 7-day reverse repo, with the rate remaining unchanged at 1.7%.
Moreover, the AUD is expected to receive further support from the hawkish sentiment around the Reserve Bank of Australia’s (RBA) upcoming interest rate decision on Tuesday. The RBA is likely to maintain the Official Cash Rate (OCR) at 4.35%, driven by strong labor market data and ongoing inflationary pressures.
In contrast, the US Dollar (USD) may face depreciation as Federal Reserve (Fed) policymakers anticipate an additional 75 basis points (bps) of rate cuts in 2024, following a 50 basis point cut to a 4.75-5.00% range last week.
Australian Treasurer Jim Chalmers is working on establishing a new monetary policy board at the RBA, with support from the Greens Party. The Greens have stated they will only back changes at the RBA if there is a commitment to lowering interest rates. Additionally, Philadelphia Fed President Patrick Harker commended the US central bank for navigating through challenging economic landscapes.
While Australia’s Judo Bank Composite PMI declined in September, indicating a contraction in business activity, the Employment Change data in August remained positive. The Unemployment Rate also remained steady at 4.2%, according to the Australian Bureau of Statistics.
Technical analysis of the AUD/USD pair shows that it is currently testing the lower boundary of an ascending channel pattern, implying a weakening bullish trend. However, the Relative Strength Index (RSI) remains above 50, suggesting that the pair’s trend remains uncertain.
In conclusion, the Australian Dollar remains solid against the US Dollar, buoyed by the hawkish sentiment surrounding the upcoming RBA interest rate decision. With expectations of the RBA maintaining rates and the Chinese injections of liquidity, the AUD/USD pair continues to show signs of appreciation. Keep an eye on further developments in both economies to gauge the direction of the exchange rate.
