- AUD/USD added to the ongoing weakness and retested 0.6640.
- The Dollar added small gains to Monday’s strong rebound.
- Australia’s Consumer Confidence eased a tad in September.
The US Dollar (USD) continued its bullish momentum, building on Monday’s robust rebound and keeping pressure on risk assets in the first half of the week. In response, AUD/USD hovered around the 100-day Simple Moving Average (SMA) near 0.6650, shedding ground for the third day in a row.
Despite the renewed weakness in the Australian Dollar, it still maintains a positive outlook vs. the US Dollar, bolstered by the critical 200-day SMA at 0.6616. However, the recent strength in the USD and persistent concerns over China’s economic outlook pose challenges to this optimism.
The negative behaviour of AUD/USD was accompanied by a daily pullback in copper prices, while iron ore prices saw a marginal uptick. Continued weakness in iron ore prices could cap further gains for the AUD, given its strong correlation with China’s economic performance.
Monetary policy changes have recently supported the Australian Dollar's upward trend, particularly in August. However, the Reserve Bank of Australia (RBA) kept the Official Cash Rate (OCR) at 4.35%, taking a cautious stance amid persistent inflationary pressures without signs of immediate relief.
Additional confidence in the AUD was reinforced by a hawkish tone in the latest RBA Minutes, which detailed discussions among members about the possibility of raising the cash rate target. The minutes underscored ongoing inflationary pressures and market expectations of potential rate cuts in late 2024.
Furthermore, RBA Governor Michelle Bullock reiterated the bank's hawkish position on Wednesday, cautioning about the risks of high inflation. She stated that if the economy evolves as expected, the Board does not foresee a situation where rate cuts would be necessary in the near term.
Despite this, RBA cash rate futures still indicate a high probability (around 85%) of a 25 basis point cut by the end of the year.
Overall, the RBA is anticipated to be the last among G10 central banks to start cutting rates.
However, with almost fully priced-in rate cuts from the Federal Reserve (Fed) anticipated and the RBA likely to maintain a restrictive policy stance for an extended period, AUD/USD could see further gains later this year.
Nonetheless, the upside for the Australian Dollar may be limited by the slow recovery of the Chinese economy. Issues such as deflation and inadequate stimulus measures are hindering China’s post-pandemic recovery. The latest Politburo meeting, while expressing support, did not introduce any significant new stimulus, raising concerns about demand from the world's second-largest economy.
Meanwhile, the latest CFTC report for the week ending September 3 revealed that speculative net shorts fell to their lowest level in several weeks amid rising open interest, which could support some recovery in spot. The AUD has remained in net-short territory since Q2 2021, except for a brief two-week period earlier this year.
On the docket, Consumer Confidence data, tracked by Westpac, receded to 84.6 in September, while Business Confidence eased to -4, according to NAB. Additionally, Building Permits expanded by 10.4% in July vs. the previous month, and final Private House Approvals expanded at a monthly 0.6% in the same month.
AUD/USD daily chart
AUD/USD short-term technical outlook
Further advances are projected to push the AUD/USD to its August peak of 0.6823 (August 29), then to the December 2023 high of 0.6871 (December 28), and finally to the key 0.7000 barrier.
Sellers, on the other hand, may first drive the pair below its September low of 0.6641 (September 9), before reaching the important 200-day SMA of 0.6616.
The four-hour chart reveals the continuation of the consolidative theme for the time being. That said, 0.6689 serves as immediate resistance, followed by 0.6767 and finally 0.6791. On the other side, 0.6641 aligns as the initial support level, followed by 0.6560 and 0.6507. The RSI returned to around 35.
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