The Australian Dollar (AUD) experienced a dip in its trajectory on Tuesday, largely due to the strengthening of the US Dollar (USD) and an uptick in US Treasury yields. Furthermore, the Reserve Bank of Australia's (RBA) decision to maintain interest rates also weighed down the AUD/USD currency pair. In its recent policy meeting, Australia's central bank opted for stability, deciding to maintain the current interest rate at 4.10%. This decision, while expected by some, added to the downward pressure on the Australian Dollar. Notably, a Reuters poll indicates a potential escalation in the interest rate to 4.35% by year-end, especially if inflation continues to surpass its targets.
In a brighter spot for the Australian economy, the Australian Bureau of Statistics reported a surge in permits for new construction projects in August. However, the ANZ Job Advertisements data painted a contrasting picture with a dip in September from its previous readings.
Across the Pacific, the US Dollar Index (DXY) witnessed a surge. This is attributed to the 10-year U.S. Treasury yield reaching levels unseen since 2007. Moreover, the release of mixed economic data from the US on Monday further bolstered the dollar, elevating it to an 11-month high. Specifically, the US ISM Manufacturing PMI and Manufacturing Employment Index both showed improvement in September, though the Manufacturing Prices Paid index experienced a decline.
Key Takeaways:
- The AUD/USD pair is currently trading lower, approximately around 0.6320 as of Tuesday.
- The RBA's decision to uphold the 4.1% interest rate, coupled with the speculation of a potential hike to 4.35% by year-end, is exerting pressure on the Australian Dollar.
- The data reveals a 7% rise in Australia’s Building Permits (Month on Month) in August, significantly outpacing the anticipated 2.5%. This rebound came after an 8.1% decrease in the preceding month.
- ANZ Job Advertisements data recorded a marginal 0.1% decrease in September, following a 1.9% increase in the previous month.
- China, a major trading partner for Australia, displayed positive economic data. The NBS Manufacturing PMI for August saw an uptick, surpassing expectations and rising to 50.2 from a prior reading of 49.7.
- The US 10-year Treasury yield soared to a significant 4.70% on Monday, its pinnacle since 2007.
- To prevent a potential government shutdown, the US passed crucial bills last Friday. These legislative measures ensure funding until November 17, driving further momentum in the US Dollar Index (DXY).
- Federal Reserve voices, including Governor Michelle Bowman and Vice Chair for Supervision Michael Barr, offered insights into the US's monetary policy stance, highlighting the balance between managing inflation and ensuring employment stability.
- Market participants are keenly anticipating the US employment data, especially the ADP report release on Wednesday and the Nonfarm Payrolls data scheduled for Friday.
Technical Outlook
The AUD is currently hovering around the 0.6320 mark after the RBA's rate decision. From a technical standpoint, the crucial 0.6300 level emerges as the nearest support. If this support breaks, November's low of 0.6272 could be tested. On the bullish front, the 23.6% Fibonacci retracement level at 0.6464 stands as a formidable resistance, followed closely by the 50-day Exponential Moving Average (EMA) at 0.6475.
The trade balance is an essential metric for Australia, indicative of the health of its economy. It delineates the disparity between the values of imports and exports. An increasing demand for Australian exports could usher in positive growth for the trade balance, and by extension, buoy the AUD.
