• The Australian dollar is gaining in value after the PBoC cut interest rates on Monday.
• The Central Bank reduced the interest rate on 1-year and 5-year loans to 3.10% and 3.6%, respectively.
• The Australian dollar gained after upbeat domestic labor market data reduced the chances of an RBA rate cut this year.

The Australian dollar (AUD) extended its robust streak against the US dollar (USD) for the third time in a row on Monday. The positive side of the Australian dollar can be attributed to interest rate cuts in China, its largest trading partner.

The People’s Bank of China (PBoC) lowered the 1-year prime lending rate (LPR) to 3.10% from 3.35% and the 5-year LPR to 3.6% from 3.85%, as expected. Lower interest rates are expected to boost China’s domestic economic activity, potentially boosting demand for Australian exports.

Last week’s upbeat Australian employment data has reduced the likelihood that the Reserve Bank of Australia (RBA) will cut interest rates this year. This outlook strengthened the AUD, providing further support for the AUD/USD pair.

RBA Deputy Governor Andrew Hauser spoke at the CBA 2024 Global Markets Conference in Sydney on Monday, expressing gentle surprise at the strength of job growth. Hauser noted that the labor force participation rate is extremely high and stressed that while the RBA depends on data, it is not obsessed with it.

Daily Digest Market Movements: The Australian dollar is gaining in value as the likelihood of RBA interest rate cuts decreases

• The US dollar gained support after recent data highlighting the resilience of the US economy dispelled speculation about a 50 basis point interest rate cut by the Federal Reserve (Fed) in November. According to CME FedWatch Tool, the probability of a 25 basis point interest rate cut in November is 94.3%, with no 50 basis point cut possible.
• Last week, the National Australia Bank revised its projection for the Reserve Bank of Australia (RBA). “We have shifted our expectations on the timing of interest rate cuts, now expecting the first cut in February 2025 rather than May,” the bank said. They continue to predict a gradual pace of cuts, with rates expected to fall to 3.10% in early 2026.
• On Friday, People’s Bank of China (PBOC) Governor Mr. Gongsheng said that China’s central bank “has issued detailed guidelines on share buybacks and re-lending to expand stock portfolios, emphasizing that credit funds cannot 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, down slightly from the 4.7% growth recorded in the second quarter but exceeding market expectations of 4.5%. . On a quarterly basis, GDP in the third quarter of 2024 increased by 0.9%, compared to 0.7% in the previous quarter, but did not reach the forecast of 1.0%. China retail sales rose 3.2% year-on-year in September, topping both the expected growth of 2.5% and the previous figure of 2.1%.
• U.S. retail sales rose 0.4% month-on-month in September, exceeding the 0.1% gain recorded in August and market expectations for a 0.3% enhance. Additionally, US initial unemployment claims fell by 19,000 in the week ending October 11, the largest decline in three months. Overall claims fell to 241,000, well below the expected 260,000.
• Australia’s seasonally adjusted employment change rose by 64,100 in September, taking total employment to a record high of 14.52 million. This result significantly exceeded market expectations assuming an enhance of 25.0 thousand, after a adjusted enhance of 42.6 thousand. in the previous month. Meanwhile, the unemployment rate remained steady at 4.1% in September, in line with the revised figure for August, and was lower than the expected figure of 4.2%.
• Last week, Reserve Bank of Australia (RBA) deputy governor Sarah Hunter reiterated the central bank’s commitment to curbing inflation, emphasizing that while inflation expectations remain well-anchored, persistent price pressures continue to pose significant challenges.

Technical Analysis: Australian Dollar Remains Above 0.6700; barrier at the nine-day EMA

On Monday, the AUD/USD pair is trading at around 0.6720. Technical analysis of the daily chart indicates that the pair is trading 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 continued bearish sentiment.

In terms of support, the closest level to watch is the psychological barrier at 0.6700. A break below this level could put downward pressure on the AUD/USD pair, pushing it towards the eight-week low of 0.6622, last hit on September 11.

On the other hand, the AUD/USD pair could test the nine-day EMA at 0.6723 and then the 50-day EMA at 0.6740. A break above the latter could support the pair in testing the psychological level of 0.6800.

AUD/USD: Daily chart