The AUD/USD pair gained traction on Friday, with optimism surrounding China’s stimulus measures and soft US economic data supporting the Australian Dollar. The People’s Bank of China (PBOC) implemented monetary easing measures, including rate cuts and lower reserve requirements, boosting risk sentiment and leading to the appreciation of the AUD against the USD. Additionally, the Reserve Bank of Australia (RBA) maintained its hawkish stance, signaling that interest rates will remain high until inflation returns to the target range. On the other hand, soft US inflation figures from August added pressure on the USD, further supporting the AUD/USD pair.
With US inflation, as measured by the PCE Price Index, showing a slight increase of 2.2% year over year in August, markets are still expecting a 50 bps cut by the Fed in the upcoming November meeting. This divergence in monetary policy between the Fed and the RBA is likely to support the Australian Dollar in the near term. The RBA is responsible for setting interest rates and managing monetary policy for Australia, with a primary mandate of maintaining price stability. Decisions are made by a board of governors, with a focus on achieving an inflation rate of 2-3% while supporting economic prosperity and welfare for the Australian people.
Macroeconomic data, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys, can impact the value of the AUD. A strong economy may lead the RBA to raise interest rates, further supporting the Australian Dollar. In extreme situations when lowering interest rates is not enough to boost the economy, the RBA may implement Quantitative Easing (QE) by printing money to purchase assets from financial institutions. This process can result in a weaker AUD. Conversely, Quantitative Tightening (QT) is undertaken when an economic recovery is underway, leading to a stronger AUD as the RBA reduces its asset purchases and liquidity injections.
From a technical standpoint, the AUD/USD pair is steady, hovering below the key resistance level of 0.7000. The Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators on the daily chart are strong, suggesting bullish momentum for the pair. With the RBA’s hawkish stance and the expectation of a Fed rate cut, the AUD/USD pair is likely to see further upside potential. Investors will continue to monitor economic data releases and central bank announcements for further direction on the currency pair.
