Australian Dollar Gains Ground Following China Rate Cuts, RBA’s Hauser Comments

• The Australian Dollar appreciates after the PBoC rate cuts on Monday.
• The PBoC has reduced the 1- and 5-year Prime Lending Rate to 3.10% and 3.6%, respectively.
• The Australian Dollar appreciated as positive domestic jobs data has reduced the odds of an RBA rate cut this year.

The Australian Dollar (AUD) extended its winning streak against the US Dollar (USD) for the third consecutive session on Monday. The rise in the Australian dollar could be attributed to rate cuts in China, its largest trading partner.

The People’s Bank of China (PBoC) reduced the 1-year LPR to 3.10% from 3.35% and the 5-year LPR to 3.6% from 3.85%, in line with expectations. Lower interest rates are anticipated to stimulate China’s domestic economic activity, which could increase demand for Australian exports.

Australia’s positive employment data, released last week, has reduced the likelihood that the Reserve Bank of Australia (RBA) will implement an interest rate cut this year. This outlook has strengthened the AUD, providing continued support to the AUD/USD pair.

RBA Deputy Governor Andrew Hauser addressed the CBA’s 2024 Global Markets Conference in Sydney on Monday, expressing mild surprise at the strength of jobs growth. Hauser noted that the labor participation rate is remarkably high and emphasized that while the RBA is dependent on data, it is not obsessed with it.

Daily Market Summary: Australian Dollar Appreciates on Lower Chances of RBA Rate Cuts

• The US dollar gained support as recent data highlighting the resilience of the US economy has dispelled speculation of a 50 basis point rate cut by the Federal Reserve (Fed) in November. According to the CME’s FedWatch tool, the probability of a 25 basis point rate cut in November is 94.3%, with no possibility of a 50 basis point cut.
• National Australia Bank revised its forecast 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, rather than May,” the bank stated. They continue to forecast a gradual pace of cuts, with rates expected to decline to 3.10% by early 2026.
• On Friday, People’s Bank of China (PBOC) Governor Pan Gongsheng stated that the Chinese central bank has “issued specific guidelines for share buybacks and new loans to increase holdings, emphasizing that credit funds should not flow illegally.” towards the stock market.”
• China’s Gross Domestic Product (GDP) grew at an annual rate of 4.6% in the third quarter of 2024, slightly below the 4.7% growth recorded in the second quarter but exceeding market expectations of 4.5%. On a quarterly basis, GDP increased 0.9% in the third quarter of 2024, up from 0.7% in the previous quarter but below the 1.0% forecast. China’s retail sales in September rose 3.2% year-on-year, surpassing both the expected growth of 2.5% and the previous figure of 2.1%.
• US retail sales rose 0.4% month-on-month in September, outperforming the 0.1% increase recorded in August and market expectations for a 0.3% increase. Additionally, US initial jobless claims fell by 19,000 during the week ending October 11, the largest drop in three months. The total number of applications fell to 241,000, significantly below the 260,000 anticipated.
• Australia’s seasonally adjusted employment change increased by 64.1K in September, taking total employment to a record 14.52 million. This far exceeded market expectations of an increase of 25.0K, following a revised increase of 42.6K the previous month. Meanwhile, the unemployment rate held steady at 4.1% in September, matching the revised August figure and lower than the anticipated 4.2%.
• Last week, Reserve Bank of Australia (RBA) Deputy Governor Sarah Hunter reiterated the central bank’s commitment to curbing inflation, emphasizing that while inflation expectations remain well anchored, continued price pressures continue to present challenges significant.

Technical Analysis: Australian Dollar remains above 0.6700; barrier at the nine day EMA

The AUD/USD pair is trading around 0.6720 on Monday. A technical analysis of the daily chart indicates that the pair is positioned below the nine-day exponential moving average (EMA), suggesting a short-term bearish bias. Furthermore, the 14-day Relative Strength Index (RSI) remains below 50, confirming the prevailing bearish sentiment.

In terms of support, the immediate level to watch is the psychological barrier at 0.6700. A break below this level could put downward pressure on the AUD/USD pair, pushing it towards the eight-week low of 0.6622, last seen on September 11.

To the upside, the AUD/USD pair could test the nine-day EMA at 0.6723, followed by the 50-day EMA at 0.6740. A break above the latter could support the pair to test the psychological level of 0.6800.

AUD/USD: Daily Chart