The Australian Dollar has shown continued strength against the US Dollar, marking its third consecutive day of gains. This performance is largely linked to the recent rate cuts announced by the People’s Bank of China (PBoC), which lowered its 1-year and 5-year Loan Prime Rates to 3.10% and 3.6%, respectively. The reductions are expected to provide a boost to China’s economic activity, potentially increasing demand for Australian exports, given that China is Australia’s most significant trading partner.
Supporting the appreciation of the Australian Dollar is positive employment data released last week, which suggests a lower likelihood of the Reserve Bank of Australia (RBA) implementing any interest rate cuts in the near term. This optimistic outlook has provided momentum for the AUD/USD value. The RBA’s Deputy Governor recently highlighted the unexpected strength of employment growth, with a labor participation rate that remains notably high. While the RBA is focused on data trends, it is not overly reactive to every economic indicator.
Meanwhile, the US Dollar remained resilient amid strong economic data, removing speculations around a substantial interest rate cut by the Federal Reserve. The expectation for a smaller reduction of 25 basis points in the upcoming November meeting now stands at a 94.3% probability, with no significant chance of a more dramatic cut.
On the economic front, revisions from the National Australia Bank forecast that the RBA is unlikely to decrease rates until February 2025, a shift from their previous timing. The RBA is anticipated to proceed with a gradual pace of rate cuts, potentially lowering rates to 3.10% by early 2026.
In recent economic updates, China reported a GDP growth rate of 4.6% for the third quarter, slightly less than the previous quarter but higher than market expectations, while Australia’s employment figures exhibited a strong increase in jobs. The AUD/USD pair is currently trading around 0.6720. Technical analysis suggests a bearish sentiment in the short term, with significant levels of support positioned at 0.6700 and potential resistance around 0.6723 and 0.6740.
