The Australian Dollar (AUD) has experienced a decline as it faces pressure from a strengthening US Dollar (USD), which is bolstered by rising Treasury yields. The recent uptick in risk aversion among investors, partly fueled by political uncertainties surrounding the potential return of Donald Trump to the presidency, has contributed to increased selling of US Treasury bonds.
Despite the headwinds, the AUD may be shielded from significant decreases thanks to a hawkish outlook from the Reserve Bank of Australia (RBA), driven by promising employment figures. Additionally, China’s recent interest rate cuts could further support the Australian Dollar, given that China remains Australia’s primary trading partner.
On the other hand, the US Dollar is gaining traction due to resilient economic indicators and diminishing fears of significant inflation hikes, which reduce the likelihood of aggressive rate cuts by the Federal Reserve in November. Current estimates show a 91% chance of a modest 25-basis-point rate cut, with no strong expectations for a steeper reduction of 50 basis points.
Amid these developments, analysts note that investors should prepare for a gradual pace of monetary easing from the Federal Reserve, rather than drastic changes. Some Federal Reserve officials have expressed the view that the labor market remains stable, indicating that the timing and scale of potential rate cuts will be measured and cautious.
In a separate development, the People’s Bank of China has lowered its loan prime rates, a move aimed at invigorating domestic economic activity, which could, in turn, boost demand for Australian exports. This external support comes as the National Australia Bank has revised its forecast for future RBA rate cuts, now predicting the first cut in February 2025.
From a technical standpoint, the Australian Dollar is trading at approximately 0.6670, nearing a six-week low. Analysts suggest that if the AUD continues to face selling pressure, it could test a low of 0.6622, with significant support seen at the 0.6600 level. Conversely, resistance is expected at the nine-day Exponential Moving Average around 0.6698, and further upward momentum would be indicated by a breakout above these key levels.
