Australian Dollar consolidates as US Dollar depreciates ahead of inflation data

• The AUD/USD pair remains stable following the remarks from the RBA’s Chief Economist Sarah Hunter.
• RBA’s Sarah Hunter noted that elevated rates are suppressing demand, which is expected to lead to a mild economic downturn.
• Donald Trump argued that the fees he intends to impose on imports would not lead to higher prices in the US.

The AUD/USD pair holds its position on Wednesday, following remarks from the Reserve Bank of Australia's (RBA) Assistant Governor for Economics, Sarah Hunter. However, the Australian Dollar's (AUD) losses may be limited as RBA Governor Michele Bullock maintained a hawkish outlook last week, emphasizing that it is too soon to consider rate cuts with elevated inflation.

RBA’s Assistant Governor Sarah Hunter noted that high interest rates are dampening demand, contributing to what is expected to be a mild economic downturn. Hunter also highlighted that the labor market remains tight compared to full employment levels, with employment growth likely to continue but at a slower pace than population growth, per Reuters.

Read more: RBA’s Hunter: Easing in labour market similar to past mild downturns

The AUD/USD pair encountered pressure as the US Dollar gained strength following a recent US labor market report, which cast doubt on the possibility of an aggressive interest rate cut by the Federal Reserve (Fed) at its upcoming September meeting.

The first US presidential debate between former President Donald Trump and Democratic nominee Kamala Harris in Pennsylvania began with a critical focus on the economy, inflation, and economic policies. Trump remarked, "We have a terrible economy. We have inflation that is probably the worst in history. This has been a disaster for people."

Daily Digest Market Movers: Australian Dollar consolidates amid rising risk-off mood

• According to the CME FedWatch Tool, markets are fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting. The likelihood of a 50 bps rate cut has slightly decreased to 31.0%, down from 38.0% a week ago.
• Morgan Stanley's Chief China Economist, Robin Xing, stated that China is undoubtedly experiencing deflation, likely in the second stage of the process. Xing noted that Japan's experience suggests that the longer deflation persists, the greater the need for China to implement significant stimulus measures to overcome the debt-deflation challenge, per Business Standard.
• Australia's Westpac Consumer Confidence fell by 0.5% month-on-month in September, swinging from a 2.8% gain in August.
• China's Trade Balance reported a trade surplus of CNY 649.34 billion for August, increasing from the previous reading of CNY 601.90 billion. Meanwhile, China's Exports (CNY) increased by 8.4% year-on-year, following the previous rise of 6.5%.
• RBC Capital Markets now expects the Reserve Bank of Australia to implement a rate cut at its February 2025 meeting, earlier than its previous forecast of May 2025. Despite inflation in Australia remaining elevated above the RBA's target, slower economic growth is not considered a sufficient reason for a rate cut this year.
• The US Bureau of Labor Statistics (BLS) reported that Nonfarm Payrolls (NFP) added 142,000 jobs in August, below the forecast of 160,000 but an improvement from July’s downwardly revised figure of 89,000. Meanwhile, the Unemployment Rate fell to 4.2%, as expected, down from 4.3% in the previous month.
• Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee remarked on Friday that Fed officials are starting to align with the broader market's sentiment that a policy rate adjustment by the US central bank is imminent, according to CNBC. FXStreet’s FedTracker, which uses a custom AI model to evaluate Fed officials' speeches on a dovish-to-hawkish scale from 0 to 10, rated Goolsbee's comments as dovish, assigning them a score of 3.2.

Technical Analysis: Australian Dollar hovers around 0.6650, followed by the lower boundary of descending channel

The AUD/USD pair trades near 0.6650 on Wednesday, with technical analysis of the daily chart indicating that the pair remains within a descending channel, signaling a bearish bias. The 14-day Relative Strength Index (RSI) is also below the 50 level, further confirming the ongoing bearish trend.

On the downside, the AUD/USD pair may target the lower boundary of the descending channel around 0.6620. A break below this level could reinforce the bearish outlook, potentially pushing the pair toward the throwback support zone around 0.6575.

On the upside, the AUD/USD pair may encounter resistance around the nine-day Exponential Moving Average (EMA) at 0.6693, followed by the upper boundary of the descending channel near 0.6740. A break above this upper boundary could reduce the bearish bias, potentially paving the way for the pair to retest its seven-month high of 0.6798, last reached on July 11.

AUD/USD: Daily Chart