Australian Dollar gains ground after rate cuts in China, remarks from RBA Hauser

• The Australian Dollar appreciates following the PBoC’s rate cuts on Monday.
• The PBoC has reduced the 1- and 5-year Loan Prime Rate to 3.10% and 3.6%, respectively.
• The Aussie Dollar appreciated as domestic upbeat labor data has lowered the odds of the RBA’s 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 upside of the Aussie Dollar could be attributed to the rate cuts in China, its largest trading partner.

The People's Bank of China (PBoC) reduced the 1-year Loan Prime Rate (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, potentially increasing demand for Australian exports.

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

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

Daily Digest Market Movers: Australian Dollar appreciates due to diminishing odds 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 FedWatch Tool, the probability of a 25-basis-point rate cut in November stands at 94.3%, with no possibility of a 50-basis-point cut.
• National Australia Bank revised its projection 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, instead of May," the bank stated. They continue to foresee a gradual pace of cuts, with rates expected to decrease 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 stock buybacks and reloans to boost holdings, emphasizing that credit funds must not illegally flow into the stock market."
• China’s Gross Domestic Product (GDP) grew at an annual rate of 4.6% in the third quarter of 2024, slightly down from the 4.7% growth recorded in the second quarter but exceeding market expectations of 4.5%. On a quarterly basis, GDP rose by 0.9% in Q3 2024, up from 0.7% in the previous quarter but falling short of the 1.0% forecast. China’s Retail Sales in September increased by 3.2% year-over-year, outperforming both the expected 2.5% growth and the prior figure of 2.1%.
• US Retail Sales rose by 0.4% month-over-month in September, surpassing the 0.1% gain recorded in August and market expectations of a 0.3% increase. Additionally, US Initial Jobless Claims fell by 19,000 during the week ending October 11, the largest decline in three months. The total number of claims dropped to 241,000, significantly below the anticipated 260,000.
• The seasonally adjusted Employment Change in Australia surged by 64.1K in September, bringing the total employment to a record 14.52 million. This far surpassed market expectations of a 25.0K increase, following a revised rise of 42.6K in the previous month. Meanwhile, the Unemployment Rate remained steady at 4.1% in September, matching the revised figure for August and coming in 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 although inflation expectations remain well-anchored, ongoing price pressures continue to present significant challenges.

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

The AUD/USD pair trades 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. Additionally, 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 exert downward pressure on the AUD/USD pair, pushing it toward the eight-week low of 0.6622, last seen on September 11.

On the upside, the AUD/USD pair may 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