Australian Dollar depreciates as the US Dollar edges higher due to increased risk aversion

• The Australian Dollar loses ground despite the hawkish RBA’s policy outlook.
• The AUD inches lower as the US Dollar appreciates amid less-dovish sentiment surrounding the Fed.
• CME FedWatch Tool suggests a 97% chance of a 25-basis-point rate cut by the Fed in November.

The Australian Dollar (AUD) edged lower against the US Dollar (USD) on Thursday. However, the AUD/USD pair saw some gains as the US Dollar (USD) softened slightly due to a modest decline in US Treasury yields. Traders are also closely observing the Reserve Bank of Australia’s (RBA) annual report.

The Aussie Dollar could benefit from the hawkish tone surrounding the RBA. Earlier this week, RBA Deputy Governor Andrew Hauser highlighted the country's strong labor participation rate and stressed that, although the RBA relies on data, it is not overly fixated on it.

The US Dollar strengthens as traders closely monitor the Federal Reserve’s (Fed) interest rate path, with growing expectations that the central bank will not lower rates as aggressively as previously anticipated. This shift in sentiment follows the release of strong economic data, which suggests that the US economy remains resilient and may support a more cautious approach to rate cuts.

According to the CME FedWatch Tool, there is a 97% probability of a 25-basis-point rate cut by the Fed in November, with no expectation of a larger 50-basis-point cut.

Daily Digest Market Movers: Australian Dollar depreciates despite a hawkish RBA’s stance

• S&P Global has released its preliminary October US Purchasing Managers Index (PMI) readings, showing positive momentum across sectors. The Composite PMI rose to 54.3, up from the previous 54.0. The Services PMI exceeded expectations at 55.3, compared to the forecasted 55.0, and saw a slight increase from the previous 55.2. Meanwhile, the Manufacturing PMI also came in stronger at 47.8, above the expected 47.5, and improving from the prior reading of 47.3.
• Australia's Judo Bank Composite PMI slightly rose to 49.8 in October, up from 49.6 in September, signaling a second straight month of contraction in private sector output. The Services PMI inched up to 50.6 from 50.5, marking its ninth consecutive month of expansion, while the Manufacturing PMI dipped to 46.6 from 46.7, continuing its decline.
• On Wednesday, the Fed Beige Book indicated that economic activity was "little changed in nearly all Districts," in contrast to August's report, in which three Districts reported growth and nine showed flat activity.
• In a post on the social media platform X, Federal Reserve Bank of San Francisco President Mary Daly stated that the economy is clearly in a better position, with inflation having fallen significantly and the labor market returning to a more sustainable path.
• On Monday, Federal Reserve Bank of Minneapolis President Neel Kashkari highlighted that the Fed is closely monitoring the US labor market for signs of rapid destabilization. Kashkari cautioned investors to anticipate a gradual pace of rate cuts over the coming quarters, suggesting that any monetary easing will likely be moderate rather than aggressive.
• The People's Bank of China (PBoC) reduced the 1-year Loan Prime Rate (LPR) to 3.10% from 3.35% and the 5-year LPR to 3.60% from 3.85%, which is in line with expectations. Lower borrowing costs are anticipated to stimulate China's domestic economic activity, potentially increasing demand for Australian exports.
• National Australia Bank revised its projection for the Reserve Bank of Australia (RBA) in a note last week. "We have brought forward our expectations for the timing of rate cuts, now anticipating the first cut in February 2025, instead of May," the bank stated. They continue to foresee gradual cuts, with rates expected to decrease to 3.10% by early 2026.

Technical Analysis: Australian Dollar stays below 0.6650, close to two-month lows

The AUD/USD pair trades around 0.6640 on Thursday, with technical analysis of the daily chart indicating a short-term bearish trend. The pair remains below the nine-day Exponential Moving Average (EMA), and the 14-day Relative Strength Index (RSI) is below 50, further confirming bearish bias.

On the support side, the AUD/USD pair is testing its two-month low of 0.6614, reached on Wednesday. The next major support level lies at the psychological threshold of 0.6600.

Regarding the upside, resistance is anticipated at the nine-day EMA at 0.6672, followed by the 50-day EMA at 0.6724. A break above these resistance levels could pave the way for a potential move toward the psychological barrier of 0.6800.

AUD/USD: Daily Chart