The Australian Dollar (AUD) has witnessed a steady decline, trailing beneath a pivotal level in anticipation of the forthcoming Federal Reserve (Fed) verdict. A combination of weaker domestic economic data and a resilient US Dollar (USD) has placed the AUD/USD pair under significant strain, just ahead of the Federal Open Market Committee's (FOMC) impending policy announcement. Recent data unveiled a subdued economic atmosphere in Australia. The AiG Industry Index for September plummeted to -9.9, marking a sharp decline from its previous -3.5 reading. Concurrently, Building Permits for September dropped by 4.6%, diverging from market expectations that predicted a 1.3% increase.
However, it's not all gloom. The Australian market experienced a notable boost from robust Retail Sales data in September, outpacing market projections with a growth of 0.9%. These figures, contrasting with a forecasted 0.3% and the prior month's 0.2% rise, offer a glimpse of silver lining.
RBA's Stance on Inflation
As the Reserve Bank of Australia (RBA) gears up to announce its monetary policy on November 7, market analysts are speculating a potential 25 basis points hike in interest rates. This is largely attributed to burgeoning inflationary pressures. The Australian Consumer Price Index (CPI) for Q3 2023 escalated to 1.2%, surpassing both its previous quarter's 0.8% and market predictions of 1.1%.
RBA's Governor, Michele Bullock, voiced concerns regarding the potential repercussions of supply-driven inflation. She underscored the RBA's commitment to reactive measures, especially if inflation overshadows projections.
China's Economic Performance & Implications
China's Caixin Manufacturing Purchasing Managers' Index (PMI) for October retraced to 49.5, moving away from September's expansionary 50.6. This contraction has cast shadows on the AUD, considering the tight-knit trade relations between Australia and the world's second-largest economy. The deceleration in China's NBS Manufacturing and Services PMI further accentuates these concerns.
However, diplomatic endeavors seem to be underway, with tentative plans for a rendezvous between US President Joe Biden and Chinese Premier Xi Jinping slated for November, reflecting efforts to thaw strained relations.
US Economic Landscape
The US Dollar Index (DXY) is riding on an upward trajectory for two consecutive days, propelled by ascendant US Treasury yields. All eyes are set on the FOMC's forthcoming message post their policy meet, which will offer critical insights into the potential future movements of interest rates. While some indicators, such as the US Core Personal Consumption Expenditures Price Index, reported marginal declines, others like the University of Michigan Consumer Index surpassed expectations.
Investors are keenly awaiting other major indicators, including the US ADP Employment Change and ISM Manufacturing PMI, with widespread anticipation of interest rates remaining at 5.5% in the imminent Wednesday meeting.
Technical Analysis – AUD's Positioning
Technically, the AUD remains below the significant 0.6350 benchmark. There's strong potential support near the yearly low of 0.6270, further converging with the crucial 0.6250 level. If the currency breaks through the formidable resistance around the 50-day Exponential Moving Average (EMA) at 0.6400, it might experience an upward momentum reaching the 23.6% Fibonacci retracement level at 0.6419.
The Australian Dollar's exchange performance today, vis-à-vis other key currencies, indicates a particular weakness against the New Zealand Dollar.
As economic landscapes continue to evolve, it remains paramount for traders and investors to stay updated and vigilant, interpreting these shifts and their potential impacts on the currency market.
