- Australian PMI drops below 50 in October; September and Q3 inflation data due on Wednesday.
- The US Dollar strengthens further following positive US PMI data.
- The AUD/USD trims gains due to Dollar strength, still with scope for more upside while above 0.6340.
The AUD/USD peaked at 0.6378, the highest level in six months, and pulled back modestly during the American session to the 0.6350 area, driven by a stronger US Dollar. The Australian PMI figures were ignored by the market; attention turns to inflation data.
Data released on Tuesday showed a decline in Australian PMIs. The Services index dropped in October to 47.8 from 51.8, and the Manufacturing index decreased from 48.7 to 48. These numbers had no significant market impact. Later in the day, Reserve Bank of Australia (RBA) Governor Michele Bullock stated that the central bank “will not hesitate to raise the cash rate further if there is a material upward revision to the outlook for inflation.” Her comments helped support the Australian Dollar in the market.
On Wednesday, the Monthly Consumer Price Index (CPI) and quarterly figures, including core measures, will be released. These figures will be crucial ahead of the November 7 RBA meeting. Market participants do not expect a change in rates; however, an upward surprise in inflation data will increase the odds of another rate hike before year-end. The Monthly CPI is expected to rebound from 5.2% in August to 5.4% in September.
The Australian Dollar was among the top performers on Tuesday, with the AUD/USD posting modest gains. It was also supported by a modest improvement in risk sentiment and stable Treasury yields, despite the better-than-expected US PMIs. The Composite Index rose from 50.2 to 51, reaching the highest level in three months.
AUD/USD short-term technical outlook
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The AUD/USD rose to 0.6379 during the European session but then retraced, unable to hold above the 20-day Simple Moving Average (SMA). The price is currently hovering around the average, with technical indicators on the daily chart timidly favoring the upside. However, from a broader perspective, the trend remains downward. A daily close above the 55-day SMA at 0.6410 would put the Aussie on a more sustainable path for a rebound.
On the 4-hour chart, the price is just above the 20 and 55-SMAs, and technical indicators are biased to the upside. The pair encounters a short-term downtrend line at 0.6375; a break higher would target the 0.6395 area. The bullish tone will prevail as long as it remains above 0.6340. A slide below that level would weaken the short-term outlook. Immediate support is seen at 0.6320, followed by 0.6295, before the vital support area of 0.6285.
Support levels: 0.6340 0.6320 0.6295
Resistance levels: 0.6375 0.6395 0.6430