The Australian Dollar (AUD) gained some traction on Thursday following an unexpected rise in Private Capital Expenditure, which saw new capital investment grow by 1.1% quarter-on-quarter in the third quarter. This figure surpassed the projected increase of 0.9% and represented a turnaround from a previous 2.2% decline. However, upward momentum for the AUD/USD exchange rate may face obstacles with the impending announcement from the United States regarding new sanctions on AI chip technology aimed at China.
The close economic ties between Australia and China mean that any fluctuations in China’s economic climate can influence Australian markets considerably. Recent developments have already created headwinds for the Australian currency, particularly after an announcement regarding a 10% tariff increase on all Chinese goods coming to the U.S. This sentiment has been compounded by a cautious outlook from the Reserve Bank of Australia (RBA) regarding interest rates, despite rising inflation.
Australia’s Consumer Price Index (CPI) recorded a year-over-year increase of 2.1% in October, remaining steady from the previous month but falling short of the anticipated 2.3%. This marks the lowest inflation rate since July 2021 and keeps the CPI within the RBA’s target range of 2 – 3% for three successive months. This relatively stable inflation scenario may provide some support for the Australian Dollar.
In contrast, the U.S. Dollar is facing pressure as holiday-related reduced trading volume impacts market activity. However, the decline of the USD may be limited due to the Federal Reserve’s cautious stance on further interest rate cuts following solid consumer spending data. The recent report also highlighted persistent inflationary signals, with the Personal Consumption Expenditures (PCE) Price Index rising to 2.3% year-over-year in October.
Market participants are closely monitoring signals from the Federal Reserve regarding future interest rate policies. The recent meeting minutes indicate a careful approach amid easing inflation and a strong labor market. Speculation around rate cuts remains active, with expectations building towards the potential for a quarter-point rate cut at the December meeting. Meanwhile, Australia’s major banks are signaling potential rate cuts from the RBA in the coming months, with forecasts varying between February and May.
Current technical analysis of the AUD/USD suggests increased bearish momentum. The currency pair is trading near the 0.6500 level and remains within a descending channel. Sustained negative sentiment is reflected in the 14-day Relative Strength Index (RSI) being below 50. If downward pressure continues, the pair may revisit its four-month low of 0.6434. A breach of this level could expose further downside towards the yearly low of 0.6348, while resistance is identified around 0.6501 and 0.6540, indicating potential upward movement if broken.
