The Australian Dollar is showing potential to recover as sentiments surrounding the Reserve Bank of Australia (RBA) trend towards a more hawkish position. Australia’s Monthly Consumer Price Index (CPI) saw a year-over-year increase of 2.7% in August, which was below the anticipated 2.8% rise and a significant drop from the previous 3.5% increase. Meanwhile, Federal Reserve officials are signaling caution on rate cuts, highlighting persistent inflation indicators that exceed the 2% target.
On Monday, the Australian Dollar (AUD) lost some of its earlier gains against the US Dollar (USD) in light of a disappointing CPI report. However, positive news emerged from China, Australia’s largest trading partner, which announced new stimulus initiatives that provided some support for the currency. The RBA opted to maintain the Official Cash Rate (OCR) at 4.35%, affirming its commitment to hold steady for the time being without raising rates in the immediate future.
Furthermore, alongside RBA developments, the People’s Bank of China (PBOC) is implementing measures to bolster its economy. A reduction in the reserve requirement ratio by 50 basis points and a decrease in the 7-day repo rate from 1.7% to 1.5% were among the significant actions announced on Tuesday. The PBOC also lowered the one-year Medium-term Lending Facility rate, marking the third rate cut since July.
In the United States, consumer sentiment is showing signs of weakness, as evidenced by the Consumer Confidence Index, which fell to 98.7 in September from a revised 105.6 in August, marking the largest decline in over two years. On the other hand, Australia’s consumer confidence indicators experienced a slight uptick, though still remaining below key thresholds for an extended period.
Looking at the economic indicators, the S&P Global US Composite Purchasing Managers Index (PMI) slowed to 54.4 in September, while the Manufacturing PMI dropped unexpectedly into contraction territory at 47.0. In contrast, the Services PMI showed modest growth. This mixed performance reflects broader concerns about the US economy, with key officials calling for a normalization of monetary policy.
From a technical standpoint, the AUD/USD pair is positioned near 0.6890, suggesting an upward trajectory within an ascending channel. Indicators show a bullish bias, with the Relative Strength Index nearing 70. Resistance levels are anticipated around 0.6930 and 0.6950, while support may emerge at the 0.6816 level, with a significant psychological support level at 0.6700. A breach below this could further weaken the pair, potentially targeting new lows.
