Australian Dollar falls due to risk aversion, downside appears limited amid hawkish RBA

• The Australian Dollar edges lower as rising Middle East tensions dampen the risk appetite.
• Australia’s Trade Balance stood at 5,644 million month-over-month in August, exceeding the expected 5,500 million and July’s 5,636 million readings.
• The Israeli Broadcasting Authority reported that the security cabinet would issue a strong response to the recent Iranian attack.

The Australian Dollar (AUD) edges lower against the US Dollar (USD) following the key economic data released on Thursday. Additionally, the risk-sensitive AUD/USD pair receives downward pressure as rising geopolitical tensions in the Middle East dampen the risk appetite. The Israeli Broadcasting Authority (IBA) reported that Israel's security cabinet has decided to issue a strong response to the recent Iranian attack. On Tuesday night, Iran launched over 200 ballistic missiles and drone strikes on Israel.

Australia’s Trade Balance for August stood at 5,644 million month-over-month, surpassing market expectations of 5,500 million and slightly higher than July’s surplus of 5,636 million. However, both Exports and Imports declined by 0.2% month-over-month in August.

However, the downside risk for the AUD may be limited due to the hawkish outlook surrounding the Reserve Bank of Australia (RBA). Data released earlier this week showed stronger-than-expected retail sales growth for August, lowering the likelihood of an early rate cut by the RBA. Markets have almost fully discounted the possibility of a rate cut in November. Additionally, the AUD is supported by stimulus measures from China, Australia's largest trading partner, which have boosted commodity prices.

Traders are expected to closely monitor a series of key economic data from the United States (US) scheduled to be released on Thursday, including September's ISM Services Purchasing Managers' Index (PMI) and the weekly Initial Jobless Claims for the previous week.

Daily Digest Market Movers: Australian Dollar depreciates due to risk-off sentiment

• The CME FedWatch Tool indicates that markets are assigning a 65.4% probability to a 25 basis point rate cut by the Federal Reserve in November, while the likelihood of a 50-basis-point cut is 34.6%, down from 57.4% a week ago.
• Australia's Judo Bank Services Purchasing Managers' Index (PMI) posted a reading of 50.5 in September, down from 52.5 in August. This indicates the eighth consecutive month of growth in services activity, albeit at a slower and marginal rate. Meanwhile, the Composite PMI declined slightly to 49.6 in September, compared to 49.8 in the previous month, data showed on Thursday.
• Federal Reserve Bank of Richmond President Tom Barkin addressed the Fed's recent rate actions on Wednesday, warning that the fight against inflation may not be over, as risks still persist. Barkin noted that the 50 basis points (bps) rate cut in September was justified because rates had become "out of sync" with the decline in inflation, while the unemployment rate was near its sustainable level.
• The ADP Employment Change report showed an increase of 143,000 jobs in September, surpassing the forecasted 120,000 jobs. Additionally, annual pay rose by 4.7% year-over-year. The total number of jobs added in August was revised upward from 99,000 to 103,000.
• The AiG Industry Index slightly improved in September, rising 4.9 points to -18.6 from the previous reading of -23.5, though it still signals contraction for the 29th consecutive month. Meanwhile, the AiG Manufacturing PMI continued its decline, falling 2.8 points to -33.6 from -30.8 prior, marking the lowest level in trend terms since the series began.
• On Tuesday, US ISM Manufacturing PMI came at 47.2 for September, matching the reading with August's print but came in below the market expectation of 47.5.
• The Australian Bureau of Statistics (ABS) reported the Retail Sales on Tuesday, the primary gauge of Australia’s consumer spending, which rose 0.7% month-over-month in August, exceeding the market expectations of a 0.4% increase.
• Federal Reserve (Fed) Chairman Jerome Powell said on Monday that the central bank is not in a hurry and will lower its benchmark rate ‘over time.’ Powell added that the recent half-point interest rate cut should not indicate similarly aggressive future actions, noting that upcoming rate changes are likely to be more modest.

Technical Analysis: Australian Dollar moves below 0.6900, ascending channel

The AUD/USD pair trades near 0.6870 on Thursday. A daily chart technical analysis shows that the pair has breached below the ascending channel. This shows a weakening bullish bias. However, the 14-day Relative Strength Index (RSI) is positioned above the 50 level, supporting the bullish sentiment.

In terms of resistance, a return to the ascending channel would reinforce the bullish bias and support the AUD/USD pair to aim for the area near the upper boundary of the channel, around the psychological level of 0.7020.

On the downside, the AUD/USD pair is testing the immediate support at the nine-day Exponential Moving Average (EMA) at the 0.6865 level. A break below this level could cause an emergence of a bearish bias and lead the pair to navigate the region around its seven-week low of 0.6622.

AUD/USD: Daily Chart