The Australian Dollar (AUD) has experienced a decline against the US Dollar (USD) amidst a backdrop of shifting monetary policy expectations. Despite a hawkish outlook from the Reserve Bank of Australia (RBA), the AUD weakened as the USD appreciated, driven by circumstances surrounding the Federal Reserve’s (Fed) rate cuts. Current market analysis indicates a substantial 97% likelihood of a 25-basis-point reduction by the Fed in November, although investors remain wary of more dramatic cuts.
On Thursday, the AUD saw minor fluctuations against the USD, gaining slightly as the US Dollar softened due to a drop in US Treasury yields. Market participants continue to keep an eye on the RBA’s annual report, amid discussions regarding growth factors such as Australia’s labor participation rate, which remains robust. The RBA’s recent communications suggest that while they monitor data, they are unlikely to be overly reactive to it.
The strength of the USD can be traced back to a more cautious sentiment surrounding the Fed’s future interest rate decisions. Recent economic indicators have revealed the resilience of the US economy, leading to expectations of a more reserved approach to monetary easing than was initially believed. Alongside this, the Fed’s Beige Book reported stable economic activity across numerous districts, contrasting previous growth signals.
Further complicating the landscape, China’s central bank cut its Loan Prime Rates, aiming to encourage domestic activity and possibly elevate demand for Australian exports. In Australia, national financial institutions have adjusted their forecasts for the RBA, now anticipating potential rate cuts beginning as early as February 2025.
Technically, the AUD/USD pair is hovering near the 0.6640 level, close to two-month lows. The market appears to be indicating a bearish trend, with the pair testing its recent low of 0.6614. Resistance levels have been identified at the nine-day Exponential Moving Average (EMA) around 0.6672, with additional resistance lying at 0.6724. If the AUD can surpass these levels, it may pave the way for a rebound toward the 0.6800 level.
