Australian Dollar offers gains following the Monthly Consumer Price Index

• The Australian Dollar may regain its ground due to a hawkish sentiment surrounding the RBA.
  

• Australia’s Monthly Consumer Price Index increased 2.7% YoY in August, falling short of expected 2.8% rise and previous 3.5% rise.
  

• Fed’s Bowman urged caution regarding central bank rate cuts, citing inflation indicators above the 2% target.
  

The Australian Dollar (AUD) gave up its intraday gains against the US Dollar (USD) after a weaker-than-expected Monthly Consumer Price Index report on Monday. However, the commodity-linked Aussie found support as China, its largest trading partner, announced a new round of stimulus measures.

The Reserve Bank of Australia (RBA) held the Official Cash Rate (OCR) steady at 4.35% on Tuesday, offering support to the Australian Dollar and bolstering the AUD/USD pair. During the press conference following the policy decision, RBA Governor Michele Bullock confirmed that rates will remain on hold for now and clarified that a rate hike was not explicitly considered during the meeting.

People's Bank of China (PBOC) Governor Pan Gongsheng announced on Tuesday that China will reduce the reserve requirement ratio (RRR) by 50 basis points (bps). Gongsheng also noted that the central bank would lower the 7-day repo rate from 1.7% to 1.5%, and reduce the down payment for second homes from 25% to 15%. Additionally, the PBOC cut the one-year Medium-term Lending Facility (MLF) rate from 2.30% to 2.0% on Thursday, following the last reduction in July 2024, when the rate was lowered from 2.50%.

Daily Digest Market Movers: Australian Dollar remains solid due to a hawkish RBA

Australia’s Monthly Consumer Price Index rose 2.7% year-over-year in August, down from the previous 3.5% rise and expected 2.8% increase.

Federal Reserve Governor Michelle Bowman stated on Tuesday that key inflation indicators are still "uncomfortably above" the 2% target, urging caution as the Fed moves forward with interest rate cuts. Despite this, she expressed a preference for a more conventional approach, advocating for a quarter percentage point reduction.

US Consumer Confidence Index fell to 98.7 in September from a revised 105.6 in August. This figure registered the biggest decline since August 2021.

The ANZ-Roy Morgan Australia Consumer Confidence Index rose by 0.8 points to 84.9 this week. Despite this increase, Consumer Confidence has now remained below the 85.0 mark for 86 consecutive weeks. On a year-over-year basis, the index is up by 8.5 points from 76.4.

The S&P Global US Composite Purchasing Managers Index (PMI) grew at a slower rate in September, registering 54.4 compared to 54.6 in August. The Manufacturing PMI unexpectedly dropped to 47.0, indicating contraction, while the Services PMI expanded more than anticipated, reaching 55.4.

Chicago Fed President Austan Goolsbee noted, “Many more rate cuts are likely needed over the next year, rates need to come down significantly.” Additionally, Atlanta Fed President Raphael Bostic said Monday that the US economy is close to normal rates of inflation and unemployment and the central bank needs monetary policy to "normalize" as well, per Reuters.

Australia’s Judo Bank Composite PMI declined to 49.8 in September from 51.7 in August, indicating a contraction in business activity as slower growth in the services sector was unable to counterbalance a deeper slump in manufacturing output. The Services PMI fell to 50.6 in September from 52.5 previously, while the Manufacturing PMI decreased to 46.7 from 48.5 in August.

Technical Analysis: Australian Dollar rises to near 0.6900, upper boundary of the ascending channel

The AUD/USD pair trades near 0.6890 on Wednesday. Technical analysis of the daily chart indicates that the pair is moving upward within the ascending channel pattern, suggesting a bullish bias. Additionally, the 14-day Relative Strength Index (RSI) has advanced towards the 70 mark, suggesting upward gains remain probable but could face a consolidation soon.

In terms of resistance, the AUD/USD pair could test the upper boundary of the ascending channel, around the 0.6930 level, followed by the psychological level of 0.6950.

The AUD/USD pair could find support at the lower boundary of the ascending channel, which coincides with the nine-day Exponential Moving Average (EMA) at 0.6816. The next significant support is at the psychological level of 0.6700. A break below this level could push the pair further down toward its six-week low of 0.6622.

AUD/USD: Daily Chart