The Australian Dollar (AUD) has experienced a decline against the US Dollar (USD) as risk aversion grows among investors. This downward trend follows a notable increase in US Treasury yields, with 2-year and 10-year yields standing at 4.02% and 4.19%, respectively. The combination of stronger-than-expected US economic data and inflation concerns has strengthened the dollar, despite a hawkish stance from the Reserve Bank of Australia (RBA) that could limit the AUD’s losses.
On Tuesday, the AUD/USD pair faced challenges as US Treasury yields rose more than 2% on Monday. The market reaction indicates that fears of a potential resurgence in inflation in the US are driving a revaluation of interest rate expectations. In contrast, the Australian Dollar may find some support from encouraging employment figures domestically and recent interest rate cuts in China, which underlines the importance of the latter as Australia’s largest trading partner.
The stronger US Dollar is a result of recent data indicating that the Federal Reserve is unlikely to implement significant rate cuts in November. Current forecasts suggest a minimal chance of a 50-basis-point cut, with expectations leaning towards a 25-basis-point cut instead. Economic watchers are keenly awaiting Thursday’s Purchasing Managers Index (PMI) reports, which could shed light on the economic health of both the US and Australia, influencing future monetary policy directions.
The RBA’s recent commentary suggests a cautious optimism regarding employment growth, with indications that the labor market remains robust. Meanwhile, the People’s Bank of China’s decision to reduce its Loan Prime Rates is intended to invigorate domestic economic activity, likely increasing demand for Australian exports.
Market analysts from National Australia Bank have adjusted their expectations for the RBA’s future rate cuts, now anticipating the first reduction in February 2025, earlier than previously considered. This outlook is reinforced by strong employment numbers in Australia, with a significant increase in job creation reported in September, alongside a steady unemployment rate.
From a technical perspective, the AUD/USD pair is trading around 0.6660, remaining below its nine-day Exponential Moving Average, which suggests a bearish short-term sentiment. With potential support at previous lows, traders will be monitoring key levels closely for future movements, particularly resistance at 0.6700 and the psychological level of 0.6800 above.
