The Australian Dollar (AUD) is maintaining its ground against the US Dollar (USD) on Monday, as markets anticipate crucial inflation data from Australia this week. Traders will closely watch Australia’s first “complete” monthly Consumer Price Index (CPI) for October, due on Wednesday, to gauge future monetary policy moves by the Reserve Bank of Australia (RBA).
The AUD/USD pair is finding support as the AUD benefits from increasing expectations of a cautious RBA stance. Minutes from the RBA’s November meeting suggested the central bank might keep interest rates unchanged for an extended period. As of November 20, ASX 30-Day Interbank Cash Rate Futures indicate only a 6% probability of a rate cut to 3.35% (from 3.60%) at the upcoming RBA Board meeting. RBA Assistant Governor Sarah Hunter remarked last Thursday that “sustained above-trend growth could fuel inflationary pressures,” while also noting the RBA won’t react to single months of volatile inflation data. She emphasized the central bank’s focus on labor market conditions and the evolving impact of monetary policy.
US Dollar Weakens as Fed Rate Cut Speculation Rises
The US Dollar Index (DXY), which measures the USD against six major currencies, has ended its five-day winning streak and is currently trading around 100.10. The Greenback’s weakness is attributed to renewed expectations of a Federal Reserve (Fed) rate cut in December. The CME FedWatch Tool now shows a 69% probability of a 25-basis-point (bps) Fed rate cut in December, a significant increase from 44% a week ago.
This shift in sentiment was reinforced by recent Fed official comments. New York Fed President John Williams stated on Friday that policymakers could still cut rates “in the near-term.” Furthermore, Fed Governor Stephen Miran noted that Nonfarm Payrolls data supports a December rate cut, indicating he “would vote for a 25-bps cut” if his vote were decisive.
Recent US economic data presented a mixed picture. The University of Michigan’s (UoM) Consumer Sentiment Index rose to 51 in November (from a preliminary 50.3), though still lower than October’s 53.6. Inflation expectations improved, with the one-year outlook easing to 4.5% (from 4.7%) and the five-year measure falling to 3.4% (from 3.6%). The delayed September Nonfarm Payrolls (NFP) report showed a gain of 119,000 jobs (revised from +22,000 for August), surpassing the 50,000 market expectation. The US Unemployment Rate, however, ticked up to 4.4% in September from 4.3% in August, while Average Hourly Earnings held steady at 3.8% YoY.
Minutes from the October FOMC meeting revealed cautious and divided Fed officials regarding future interest rate paths. While most participants suggested further rate cuts might be appropriate over time, several did not view a December reduction as necessarily appropriate.
Meanwhile, preliminary S&P Global Manufacturing Purchasing Managers Index (PMI) for Australia rose to 51.6 in November (from 49.7), with Services PMI also increasing to 52.7 (from 52.5) and Composite PMI reaching 52.6 (from 52.1). The RBA’s November meeting minutes indicated a more balanced policy stance, signaling a potential for the cash rate to remain unchanged longer if incoming data exceeds expectations.
AUD/USD Technical Analysis: Consolidation Phase Around 0.6450
The AUD/USD pair is trading around 0.6450 on Monday, showing a sideways movement within a rectangular consolidation range on the daily chart. Its position below the nine-day Exponential Moving Average (EMA) suggests subdued short-term momentum.
Immediate support for AUD/USD is located at the rectangle’s lower boundary near 0.6420, followed by the five-month low of 0.6414 from August 21.
On the upside, the primary resistance is the nine-day EMA at 0.6481, then the psychological level of 0.6500. A definitive break above 0.6500 would improve short-term momentum, potentially leading the pair towards the rectangle’s upper boundary near 0.6620.
