- The Australian dollar hit a nine-month high of 0.6859 following the Reserve Bank of Australia’s policy decision.
- The Reserve Bank of Australia decided to keep interest rates at 4.35% in September.
- The dollar faces challenges as Federal Reserve policymakers expect to cut rates further in 2024.
The Australian dollar (AUD) gained against the US dollar (USD) after the Reserve Bank of Australia (RBA) decided to keep the cash rate (OCR) at 4.35%, citing market conditions and continued pressure. The RBA board also pledged to return interest rates to target as inflation remains above target and is successful. The board will keep all options open.
The ANZ-Roy Morgan Australia Consumer Confidence Index increased by 0.8 points this week, reaching 84.9. However, despite the rise, consumer confidence has remained below the 85.0 threshold for 86 consecutive weeks. Compared to the same period last year, the index has climbed by 8.5 points from 76.4.
The US Dollar (USD) may encounter difficulties as Federal Reserve (Fed) officials anticipate further rate cuts amounting to 50 basis points (bps) in 2024, following last week’s substantial 50 bps reduction. Reflecting this sentiment, Minneapolis Fed President Neel Kashkari mentioned on Monday, as reported by Reuters, that he expects and supports additional rate cuts in the coming year.
Daily Digest Market Movers: Australian Dollar maintains position due to hawkish mood surrounding the RBA
- According to the CME FedWatch Tool, markets are pricing in a 50% chance of 75 basis points to be deducted by the Fed to a range of 4.0-4.25% by the end of this year.
- The S&P Global Composite Purchasing Managers Index (PMI) grew at a slower rate in September, registering 54.4 compared to 54.6 in August. The Manufacturing PMI unexpectedly dropped to 47.0, indicating contraction, while the Services PMI expanded more than anticipated, reaching 55.4.
- Chicago Fed President Austan Goolsbee noted, “Many more rate cuts are likely needed over the next year, rates need to come down significantly.” Additionally, Atlanta Fed President Raphael Bostic said Monday that the US economy is close to normal rates of inflation and unemployment and the central bank needs monetary policy to “normalize” as well, per Reuters.
- The People’s Bank of China (PBoC) injected CNY 74.5 billion in liquidity into the banking system via a 14-day reverse repo, with the rate lowered to 1.85% from 1.95%. Additionally, the Chinese central bank also injected CNY 160.1 billion in liquidity via a 7-day reverse repo, with the rate unchanged at 1.7%.
- Australian Treasurer Jim Chalmers is working to establish a new monetary policy board at the Reserve Bank of Australia, but he needs the support of the Greens Party to move forward. The Greens have stated they will only back changes at the RBA if there is a commitment to lowering interest rates.
- Australia’s Judo Bank Composite PMI declined to 49.8 in September from 51.7 in August, indicating a contraction in business activity as slower growth in the services sector was unable to counterbalance a deeper slump in manufacturing output. The Services PMI fell to 50.6 in September from 52.5 previously, while the Manufacturing PMI decreased to 46.7 from 48.5 in August.
- Commonwealth Bank (CBA) has adjusted its expectation for the first Reserve Bank of Australia rate cut of 25 basis points, moving it from November 2024 to December 2024. This shift follows a robust employment rate and a continued “hawkish” outlook from the central bank, according to Yahoo Finance.
- Australian Employment Change came in at 47.5K in August, down from 48.9K (revised from 58.2K) in July, but well above the consensus forecast of 25.0K. The Unemployment Rate remained steady at 4.2% in August, in line with both expectations and the previous month’s figure, according to data released by the Australian Bureau of Statistics (ABS).
- Reserve Bank of Australia (RBA) Governor Michele Bullock emphasized that it is premature to consider rate cuts given the persistently high inflation. Additionally, RBA Assistant Governor Sarah Hunter noted that while the labor market remains tight, wage growth seems to have peaked and is expected to slow further.
Market Analysis: Australian dollar trades near 0.6840, a nine-month high
