• The Australian dollar is gaining as the RBA is widely expected to maintain its hawkish policy stance in November.
• Commodity-linked AUD is getting a boost from stimulus measures in China, Australia’s largest trading partner.
• The risk-sensitive AUD/USD pair may face difficulties when US President Biden states that Israel may strike Iran’s oil infrastructure.

The Australian dollar (AUD) is gaining ground due to a hawkish outlook around the Reserve Bank of Australia (RBA). The latest data showed that retail sales growth for August exceeded expectations, reducing the chances of an early interest rate cut by the RBA. Markets have almost ruled out an interest rate cut in November. In addition, the AUD is benefiting from stimulus measures in China, Australia’s largest trading partner, which have pushed up commodity prices.

The risk-sensitive AUD/USD pair may face difficulties as rising geopolitical tensions in the Middle East negatively impact risk appetite. US President Joe Biden has stated that the United States (US) is in talks with Israel about potential attacks on Iran’s oil infrastructure. According to the BBC, Israeli Prime Minister Benjamin Netanyahu warned that Iran “will pay a heavy price” for Tuesday’s attack, which included firing at least 180 ballistic missiles at Israel.

The Australian dollar came under pressure as the US dollar (USD) gained strength following better-than-expected ISM Services PMI and ADP employment reports, which undermined dovish expectations for the Federal Reserve’s (Fed) monetary policy. Traders now look to the next direction after Friday’s U.S. employment data, including nonfarm payrolls (NFP) and average hourly earnings.

Daily Digest Market Update: Australian Dollar Gets Support from Hawkish Sentiment Around RBA

• The CME FedWatch Tool indicates that markets assign a 67.4% probability to the Federal Reserve cutting interest rates by 25 basis points in November, while the probability of a 50 basis point rate cut is 32.6%, down from 35.2% on ago.
• Federal Reserve Bank of Chicago President Austan Goolsbee reiterated Thursday that interest rates must be cut “significantly” over the next year. Goolsbee further stated that he would not like to keep the unemployment rate at 4.2% before it increases further.
• The American ISM Services PMI rose to 54.9 in September from 51.5 in August and exceeded the market forecast of 51.7. Meanwhile, the Paid Services Price Index, a key indicator of inflation, rose to 59.4 from 57.3.
• Australia’s trade balance for August was 5,644 million month-on-month, exceeding market expectations of 5,500 million and just above July’s surplus of 5,636 million. However, both exports and imports fell by 0.2% month-on-month in August.
• The Australian Judo Bank Services Purchasing Managers’ Index (PMI) rose to 50.5 in September, up from 52.5 in August. This marks the eighth consecutive month of service business growth, albeit at a slower and marginal pace. Meanwhile, the Composite PMI fell slightly to 49.6 in September from 49.8 in the previous month, data showed on Thursday.
• Federal Reserve Bank of Richmond President Tom Barkin on Wednesday addressed the Fed’s recent action on interest rates, warning that the fight against inflation may not be over yet as risks remain. Barkin noted that the 50 basis point (bp) rate cut in September was justified because rates were out of sync with falling inflation while the unemployment rate was close to sustainable levels.
• ADP’s Employment Change report showed an augment of 143,000 jobs in September, exceeding the forecast of 120,000 jobs. Additionally, annual remuneration increased by 4.7% year-on-year. The total number of jobs added in August was revised upwards from 99,000 to 103,000.
• On Monday, Federal Reserve (Fed) Chairman Jerome Powell said the central bank was in no hurry and would lower its benchmark rate “over time.” Powell added that the recent half-point rate cut should not indicate similarly aggressive action in the future, noting that upcoming rate changes are likely to be more modest.

Technical Analysis: Australian Dollar Stays Below 0.6850, Nine-Day EMA

On Friday, the AUD/USD pair is trading near the 0.6840 level. Technical analysis of the daily chart indicates that the pair is below a rising channel, signaling the emergence of a bearish, bullish bias. However, a return to the channel would strengthen bullish sentiment as the 14-day relative strength index (RSI) remains above the 50 level, suggesting that bullish momentum is still present.

In terms of resistance, the pair could test the immediate nine-day exponential moving average (EMA) at 0.6857 and then the lower boundary of the ascending channel at 0.6910. A return to the ascending channel would strengthen the bullish bias and aid AUD/USD explore the area around the upper boundary of the channel at 0.7040.

On the other hand, the AUD/USD pair may reach the psychological level of 0.6800. A break below this level could push the pair to move regionally around the seven-week low of 0.6622 recorded on September 11.

AUD/USD: Daily chart