Market update: Australian dollar holds losses after RBA stands firm

[MongiIG]

AUD held early losses after the RBA kept interest rates on hold; AUD/USD looks vulnerable as it tests vital support; AUD/NZD falls below key support and what is the outlook and the key levels to watch in AUD/USD and AUD/NZD?

 

Source: Bloomberg

 

Forex Australian dollar United States dollar Inflation AUD/USD Central bank

 Manish Jaradi | IG Analyst, Singapore | Publication date: Tuesday 03 October 2023 07:17

The Australian dollar held early losses after the Reserve Bank of Australia (RBA) kept benchmark interest rates steady, in line with market expectations.

RBA kept the benchmark rate steady at 4.1% for the fourth straight month but said some further tightening of monetary policy may be required as inflation remains still too high and the labour market remains strong. The central bank maintained its central forecast for inflation returning to the 2-3% target range by late 2025.

Australia's CPI accelerated to 5.2% on-year in August, significantly above the central bank’s 2-3% target range. The recent sharp rise in oil prices poses upside risks to RBA’s inflation forecast and keeps alive the possibility of one more rate hike in this cycle. Markets are pricing in one more RBA rate hike early next year and broadly steady rates thereafter in 2024.

Meanwhile, tentative signs of a trough in manufacturing activity in China are emerging - factory activity expanded for the first time in six months in September. This follows a spate of other indicators in August, including retail sales and easing deflationary pressures, that suggested economic growth could be bottoming in the world’s second-largest economy. Any improvement in China’s growth outlook could bode well for Australia.

AUD/USD five-minute chart

 

Source: TradingView

Furthermore, the US Congress agreed on a last-minute deal to prevent a partial government shutdown briefly supporting the AUD.

However, broader risk appetite has remained in check amid surging US yields driven by higher-for-longer US rates view. Fed Governor Michelle Bowman reinforced the view on Monday saying she remains willing to support another increase in the central bank’s policy rate at a future meeting if incoming data shows progress on inflation has stalled or is too slow.

AUD/USD: Testing key support

On technical charts, AUD/USD has gone sideways over the past month, with stiff resistance at the late-August high of 0.6525 and quite strong support at the August low of 0.6350. For immediate downside risks to fade, AUD/USD needs to rise above 0.6525. Such a break could open the way toward the 200-day moving average (now at about 0.6675).

On the downside, any break below 0.6350 could expose downside risks toward the October 2022 low of 0.6170.

AUD/USD daily chart

 

AUD/NZD: Attempting to break below key support

After remaining sideways for two months, NZD/AUD is attempting to break below the lower end of the range at the July low of 1.0720. Such a move could clear the path initially toward the May low of 1.0550, not too far from the December low of 1.0470.

AUD/NZD daily chart

 

Source: TradingView

 

 

 

This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.