The Australian Dollar (AUD) is experiencing a subdued performance against the US Dollar (USD) following two days of gains, as mixed Producer Price Index (PPI) data for the third quarter was released on Friday. Despite this, expectations of a hawkish stance from the Reserve Bank of Australia (RBA) continue to support the AUD, limiting its losses against the USD.
Australia’s Producer Price Index increased by 0.9% quarter-on-quarter in Q3, following a 1.0% rise in the previous quarter and surpassing market forecasts of 0.7%. This marks the 17th consecutive period of producer inflation. However, on an annual basis, PPI growth slowed to 3.9%, down from 4.8% in the prior quarter.
In related economic news, China’s Caixin Manufacturing Purchasing Managers Index (PMI) rose to 50.3 in October, up from 49.3 in September and exceeding market expectations of 49.7. Given China’s status as a major trading partner for Australia, shifts in the Chinese economy can significantly impact Australian markets.
The USD has faced challenges following the release of the Personal Consumption Expenditures (PCE) Price Index data on Thursday. Nevertheless, downward pressure on the USD may be mitigated by prevailing market caution ahead of the upcoming US presidential election.
Traders are now focusing on the Nonfarm Payrolls (NFP) report scheduled for release on Friday. The US economy is projected to have added 113,000 jobs in October, with the unemployment rate expected to hold steady at 4.1%. A significant slowdown in job growth could prompt the Federal Reserve (Fed) to consider more aggressive rate cuts, impacting the USD. However, some labor market weakness may be linked to temporary distortions from Hurricane Helene.
In domestic news, Australia’s retail sales rose by just 0.1% month-on-month in September, falling short of the expected 0.3% and a stark decrease from the previous month’s 0.7% growth. On a quarterly basis, retail sales increased by 0.5% in Q3, rebounding from a 0.3% decline in the prior quarter.
The Australian Bureau of Statistics reported a modest rise in the Consumer Price Index (CPI), which grew just 0.2% quarter-over-quarter in Q3, down from 1.0% in the previous quarter and slightly below the anticipated 0.3%. The CPI rose 2.1% year-over-year in September, also coming in below market expectations of 2.3% and down from August’s 2.7%.
On the technical front, the AUD/USD pair is trading near 0.6570. The daily chart suggests a potential softening of the bearish bias as the pair has broken above its descending channel pattern. The 14-day Relative Strength Index (RSI) indicates that bearish sentiment persists, with lower highs and lows.
On the downside, the AUD/USD pair may test support at the upper boundary of 0.6550, which could signal a return to the descending channel. A successful re-entry would reinforce the bearish bias, potentially pushing the pair toward the key psychological level of 0.6500, followed by the channel’s lower boundary around 0.6480. Conversely, resistance is found at the nine-day Exponential Moving Average (EMA) at 0.6604, with a break above this level possibly paving the way to the psychological level of 0.6700.
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