- Australian Dollar holds ground ahead of the RBA interest rates decision on Tuesday.
- Australia’s TD Securities Inflation grew 5.7% in September, lower than 6.1% in August.
- US Core PCE for August rose as estimated but lowered than July’s figures.
The Australian Dollar (AUD) holds ground to continue the winning streak on the third successive day on Monday. The AUD/USD pair receives upward support, primarily supported by the Chinese upbeat PMI data released on the weekend. However, the US Dollar (USD) continues to demonstrate resilience after the moderate economic data released on Friday.
Australia’s TD Securities Inflation (YoY) data showed that inflation estimation in September was lower than August’s readings. The Reserve Bank of Australia (RBA) is expected to keep the interest rate unchanged in the upcoming policy meeting on Tuesday.
However, the Consumer Price Index (CPI) in Australia for the month showed improvement compared to July, which could be attributed to the increasing energy prices. The rise in inflation could impact the RBA’s policy decision.
The US Dollar Index (DXY) holds ground to continue to gain in the second trading session after the moderate datasets from the United States (US). Core Personal Consumption Expenditures (PCE) – Price Index (YoY) for August rose as estimated but lowered than July’s figures.
US Core PCE (MoM) showed a soft reading against the market consensus. While the Michigan Consumer Sentiment Index (Sep) improved from the previous figures.
Additionally, the USD’s strength is attributed to the positive performance of US Treasury yields. The yield on the 10-year US Treasury note hovers below the record highs.
Daily Digest Market Movers: Australian Dollar attempts to gain amid market caution surrounding Fed’s interest rates trajectory, RBA decision
- AUD/USD extends gains, trading around 0.6430 at the time of writing during early Asian trading hours on Monday.
- The Aussie Dollar could further face challenges due to increased market caution surrounding the US Federal Reserve (Fed) interest rates trajectory.
- RBA is expected to keep current interest rates at 4.1% in the upcoming policy meeting on Tuesday.
- Australia’s TD Securities Inflation (YoY) rose 5.7% in September, lower than 6.1% in August.
- Australia’s Monthly Consumer Price Index (CPI) year-over-year for August rose 5.2% as expected, up from the previous rate of 4.9%.
- China’s Manufacturing PMI data rose into positive territory. China’s NBS Manufacturing PMI for August grew to 50.2 from the previous 49.7 figures, exceeding the 50.0 expected.
- Additionally, the Non-Manufacturing PMI rose climbed to 51.7 from the 51.0 previous reading, surpassing the market consensus of 51.5 readings.
- US Core PCE – Price Index (YoY) for August rose 3.9% as estimated, eased from the previous reading of 4.3%. Core PCE (MoM) showed a soft reading of 0.1% against the market consensus to be consistent at the 0.2% prior.
- US Michigan Consumer Sentiment Index (Sep) improved to 68.1 from the previous figure of 67.7, which was expected to remain unchanged.
- After the Friday session, bills were successfully passed in the US to avert a government shutdown, securing funding until November 17. This development has prompted a resumption of the US Dollar Index (USD) upward trajectory.
- Chicago Fed President Austan Goolsbee expressed confidence on Thursday that the Fed will bring inflation back to its target. Goolsbee also highlighted the rare opportunity to achieve this without a recession, indicating the US Federal Reserve’s (Fed) commitment to managing inflation while sustaining economic growth.
- Fed President Thomas Barkin acknowledged that recent inflation data has been positive but emphasized that it’s premature to determine the future course of monetary policy. Barkin also noted that the data lost during a government shutdown could complicate the understanding of the economy.
- Traders await US ISM Manufacturing PMI for September ahead of the Fed’s Chair Jerome Powell’s speech on Monday. The RBA interest rate decision will be eyed on Tuesday.
Technical Analysis: Australian Dollar hovers below 0.6450, barrier at 23.6% Fibonacci retracement
Australian Dollar trades around 0.6430, followed by 0.6450 psychological level. A firm break above the latter could support the Aussie Dollar (AUD) to explore the region around 23.6% Fibonacci retracement at 0.6464 level, followed by the 50-day Exponential Moving Average (EMA) at 0.6482. On the downside, September’s low at 0.6331, followed by the 0.6300 psychological emerges as the key support.
AUD/USD: Daily Chart
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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