Australian Dollar Strengthens Amid Inflation Data; RBA’s Expected Hawkish Stance Boosts AUD/USD
The Australian Dollar (AUD) gained momentum following the release of the Melbourne Institute’s Inflation Gauge on Monday, signaling potential support for the Reserve Bank of Australia’s (RBA) hawkish outlook. With underlying inflation, highlighted by the trimmed mean, remaining high, the RBA is widely expected to keep the cash rate steady at 4.35% in Tuesday’s policy meeting, which further strengthens the Aussie Dollar against the US Dollar (USD).
In October, the TD-MI Inflation Gauge rose by 0.3% month-over-month, up from 0.1% in the prior month, marking the highest reading since July and preceding the RBA’s November meeting. On an annual basis, the inflation gauge rose to 3.0%, up from 2.6%. This data release, along with the RBA’s anticipated stance, has contributed to a favorable outlook for the AUD/USD pair.
US Dollar Pressured by Weak October Jobs Data; Fed’s Rate Cut in Focus
The US Dollar weakened after October’s Nonfarm Payrolls (NFP) data showed a disappointing gain of only 12,000 jobs, falling well short of the expected 113,000. The Bureau of Labor Statistics (BLS) reported a revised increase of 223,000 jobs for September, down from the initially reported 254,000, leaving the unemployment rate steady at 4.1%. These weaker-than-expected results have increased the likelihood of a rate cut by the Federal Reserve, with the CME FedWatch Tool indicating a 99.6% probability of a 25 basis point cut.
Additionally, upcoming US presidential election results could drive safe-haven flows, potentially supporting the USD amidst increased uncertainty.
Key Market Drivers for the Australian Dollar: Domestic Data and Trade Relations
Australia’s recent economic indicators show mixed signals. ANZ Australia Job Advertisements rose by 0.3% month-over-month in October, slowing from the 2.3% increase in September, but marking the second consecutive monthly rise. This trend, along with a quarterly 0.9% increase in Australia’s Producer Price Index (PPI), points to ongoing inflationary pressure. As Australia’s trade ties with China are essential to its economy, the recent increase in China’s Caixin Manufacturing PMI to 50.3 from 49.3 adds further support to the AUD.
The recent meeting between China’s Commerce Minister Wang Wentao and Australia’s Trade Minister Don Farrell emphasized China’s interest in an improved business environment in Australia, underscoring Australia’s position in the global trade market.
Technical Analysis: AUD/USD Hovering Near Key Resistance at 0.6600
AUD/USD is currently testing the 0.6600 level, with technical indicators showing signs of potential bullish momentum. The nine-day Exponential Moving Average (EMA) at 0.6602 acts as immediate resistance, followed by the 14-day EMA at 0.6625. If the AUD/USD pair breaks through these resistance levels, it could target the psychological threshold of 0.6700. However, if the pair reverses, immediate support is seen at 0.6536, with a further decline possibly leading to the key level of 0.6500.
Conclusion
The Australian Dollar’s strength, fueled by robust inflation data and an expected hawkish stance from the RBA, positions it well against the US Dollar, particularly as the Federal Reserve considers a potential rate cut. Market participants will continue monitoring both the US presidential election and key economic indicators to gauge further movements in the AUD/USD pair.
