The Australian Dollar (AUD) has been trading in positive territory for the second consecutive day in Friday’s Asian session, gaining ground against the US Dollar (USD). However, reduced bets of deeper Fed rate cuts are supporting the USD and weighing on the pair. Investors are now bracing for the US PPI data, which is scheduled for release on Friday. The outcome of this data could potentially impact the USD and act as a tailwind for AUD/USD, depending on whether the reports show a softer or stronger than expected outcome. Additionally, the preliminary release of the Michigan Consumer Sentiment Index will also be closely monitored later in the day.
Recent events such as the RBA Minutes from the September meeting have shown that board members are overlooking warnings about potential rate cuts in the near future. The Australian central bank is keeping its options open, closely watching for any signs of economic improvement in the second half of the year. Meanwhile, in the US, the Consumer Price Index (CPI) rose 2.4% YoY in September, slightly lower than the August reading, but still above expectations. The core CPI also saw an increase, climbing to 3.3% YoY. However, the Initial Jobless Claims for the week ending October 4 were higher than expected, pointing to potential economic challenges.
Market experts have differing opinions on the possibility of future rate cuts by the Fed. New York Fed President John Williams expects more rate cuts as inflation pressures moderate and the economy remains solid. Chicago Fed President Austan Goolsbee anticipates a series of rate reductions over the next year to year and a half given that inflation is close to the Fed’s 2% target. Atlanta Fed President Raphael Bostic, however, is open to the idea of skipping a rate cut in November if economic data does not align with the Fed’s target figures by then.
In terms of technical analysis, the Australian Dollar is currently maintaining a positive stance in the longer term. The AUD/USD pair is supported above the lower limit of the ascending trend channel and the key 100-day Exponential Moving Average (EMA). However, there is a possibility of further downside, as indicated by the 14-day Relative Strength Index (RSI) located below the midline. The key levels to watch are at 0.6767 for upside potential and 0.6700 as support. A breach of either level could signal a potential shift in the pair’s direction.
Factors influencing the Australian Dollar include the level of interest rates set by the Reserve Bank of Australia, the price of Iron Ore (its largest export), the health of the Chinese economy (its largest trading partner), inflation in Australia, its growth rate, and Trade Balance. Market sentiment is also a major factor, with risk-on sentiment positive for the AUD. The RBA influences the AUD by adjusting interest rates to maintain stable inflation. Positive Chinese economic data can boost the AUD due to increased demand for Australian exports, while Iron Ore prices and Trade Balance also impact the currency’s value.
Overall, the Australian Dollar is currently seeing positive momentum against the US Dollar, with upcoming data releases and market sentiment likely to play a role in determining the pair’s direction. The RBA’s approach to potential rate cuts, US economic data, and global economic conditions will continue to be key factors influencing the AUD in the near future. Investors will need to stay vigilant and monitor developments closely to make informed decisions regarding the AUD/USD pair.
