The Australian Dollar Soars on Strong Retail Sales Data and Hawkish RBA Stance
- The Australian Dollar gains ground as Retail Sales exceeded the expected increase in August.
- The AUD remains solid as the RBA to keep the monetary policy restrictive in the near term.
- The US Dollar advances as Fed Chair Powell said the central bank will lower its benchmark rate ‘over time.’
The Australian Dollar (AUD) has showcased resilience against the US Dollar (USD) in light of exceptional Retail Sales figures. The Australian Bureau of Statistics (ABS) revealed a 0.7% month-over-month surge in August, surpassing market forecasts of a 0.4% uptick.
The Strength of the Australian Dollar
The AUD is bolstered by the hawkish sentiment emanating from the Reserve Bank of Australia (RBA) concerning its interest rate approach. With the RBA maintaining a cash rate of 4.35% for the seventh consecutive meeting, it underlines the necessity of keeping policy restrictive to curb inflation. Furthermore, China’s stimulus initiatives have augmented demand prospects in Australia’s primary trading partner, boosting commodity prices and fortifying the Aussie Dollar.
However, the AUD/USD pair faces potential limitations due to the robust performance of the US Dollar (USD). This could be attributed to recent statements by Federal Reserve (Fed) Chair Jerome Powell, indicating a gradual reduction in the central bank’s benchmark rate ‘over time.’ Powell emphasized that the recent half-point rate cut should not be interpreted as a signal for aggressive future actions, hinting at more tempered adjustments in the future.
Daily Digest Market Movers: Australian Dollar appreciates due to hawkish RBA’s policy outlook
- The CME FedWatch Tool suggests a 61.8% likelihood of a 25 basis point rate cut by the Federal Reserve in November, with a reduced probability of a 50-basis-point decrease.
- China’s Caixin Manufacturing Purchasing Managers’ Index (PMI) fell to 49.3 in September, signaling contraction, while the NBS Manufacturing PMI improved to 49.8, surpassing market expectations.
- St. Louis Federal Reserve President Alberto Musalem advocates for gradual rate cuts following a significant half-point reduction in September, emphasizing the need for a faster pace if the economy weakens beyond expectations.
- US Core Personal Consumption Expenditures (PCE) Price Index for August increased by 0.1% MoM, aligning with the Fed’s view of easing inflation and reinforcing the potential for an aggressive rate-cutting cycle.
- Australian Treasurer Jim Chalmers discusses China’s economic slowdown and welcomes new stimulus measures, fostering productive dialogues with the NDRC during his China visit.
- China plans to inject over CNY 1 trillion into its major state banks to address financial challenges, marking a significant capital infusion since the 2008 global financial crisis.
- The Reserve Bank of Australia’s Financial Stability Review highlights the resilience of the Australian financial system, with concerns focused on stress in China’s financial sector and domestic mortgage payment delinquencies.
Technical Analysis: Australian Dollar holds position above 0.6900, lower boundary of an ascending channel
The AUD/USD pair hovers near 0.6930, showcasing an upward trend within an ascending channel. The pair’s ability to stay above the lower channel boundary affirms the bullish bias, supported by an RSI below 70, indicating positive momentum.
Resistance levels for the AUD/USD pair are anticipated near the upper channel boundary around 0.7020. A breakthrough could signal further bullish momentum, while failure may lead to a pullback within the channel.
On the downside, initial support lies at the lower channel boundary around 0.6890, followed by the nine-day EMA at 0.6866. A breach below the EMA may weaken the bullish stance, potentially guiding the pair towards its six-week low of 0.6622.
AUD/USD: Daily Chart
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