The AUD/USD pair is on the rise after former RBA Governor Bernie Fraser criticized the current RBA board for being too focused on inflation at the expense of the job market. This criticism comes as Australia’s Consumer Inflation Expectations eased to 4.4% in September, down slightly from the previous month’s high of 4.5%. Fraser warned of recessionary risks and urged the Board to lower the cash rate to prevent severe consequences for employment.
Improved risk sentiment following the US inflation report has also supported the Australian Dollar against the US Dollar. The US Consumer Price Index data showed a drop in headline inflation to a three-year low, although core inflation exceeded expectations. This has increased the likelihood of the Federal Reserve implementing a 25-basis points interest rate cut in September to kick off its easing cycle.
The Reserve Bank of Australia’s Assistant Governor for Economics, Sarah Hunter, highlighted that high interest rates are dampening demand and could lead to a mild economic downturn. However, she also mentioned that the labor market remains tight and employment growth is expected to continue, albeit at a slower pace compared to population growth. Market participants are fully anticipating a rate cut by the Federal Reserve at its September meeting, with the probability of a 50 basis points cut decreasing significantly.
China’s economy is reportedly experiencing deflation, similar to Japan’s situation, which may require significant stimulus measures to combat the debt-deflation challenge. Additionally, Australia’s Westpac Consumer Confidence dipped in September after a gain in August, while China’s Trade Balance reported a surplus for August with an increase in exports year-on-year.
Technical analysis of the AUD/USD pair shows a bearish bias as it trades near 0.6680. The pair remains within a descending channel with the RSI below 50, indicating a potential further downside towards 0.6600. On the upside, resistance levels are seen around the nine-day EMA at 0.6694 and the upper boundary of the descending channel near 0.6720. A break above these levels could mitigate the bearish outlook and allow the pair to test its seven-month high of 0.6798.
Overall, the Australian Dollar’s value is influenced by various factors such as interest rates set by the RBA, the health of the Chinese economy, commodity prices like Iron Ore, inflation rates, growth rate, and Trade Balance. Market sentiment also plays a significant role in determining the value of the AUD, with risk-on sentiment positive for the currency. The Trade Balance, which reflects the difference between exports and imports, also impacts the Australian Dollar’s value, with a positive balance strengthening the currency.
