Australian Dollar Jumps Ahead of RBA Rate Decision

Australian Dollar Jumps Ahead of RBA Rate Decision

The Australian dollar strengthened against other major currencies in the Asian session on Monday, as traders await the Reserve Bank of Australia’s (RBA) upcoming interest rate decision scheduled for Tuesday.

The RBA is expected to keep the Official Cash Rate (OCR) steady at 4.35 percent in the monetary policy meeting due on Tuesday, supported by robust labor market data and ongoing inflationary pressures.

China’s central bank lowered a short-term policy rate and pumped more liquidity into the financial system in a bid to boost the world’s second-largest economy. The People’s Bank of China (PBoC) cut the 14-day reverse repurchase interest rate to 1.85 percent from 1.95 percent. The bank injected CNY 74.5 billion via the policy tool.

The bank also conducted seven-day reverse repurchase operations of CNY 160.1 billion at an interest rate of 1.70 percent. The bank had previously reduced the seven-day reverse repo rate by 10 basis points in July

Oil extended gains, after having jumped around 4 percent last week on hopes that lower borrowing costs would support global economic growth and demand.

Middle East tensions remain in play as Israel continued to carry out strikes in Gaza and Lebanon, raising concerns of an all-out war in the region.

Hezbollah launched more than 100 rockets early Sunday across a wider and deeper area of northern Israel after the country allegedly detonated several electronic devices used by the Lebanese group.

In economic news, data from Judo Bank showed that the manufacturing sector in Australia continued to contract in September, and at a faster pace, with a manufacturing PMI score of 46.7. That’s down from 48.5 in August. The composite index sank to 49.8, down from 51.7 a month earlier.

In the Asian trading today, the Australian dollar rose to nearly a 3-week high of 98.61 against the yen and a 4-day high of 1.6332 against the euro, from Friday’s closing quotes of 97.95 and 1.6398, respectively. If the Aussie extends its uptrend, it is likely to find resistance around 100.00 against the yen and 1.62 against the euro.

Against the U.S., Canada, and New Zealand dollars, the Aussie advanced to 4-day highs of 0.6387, 0.9270, and 1.0946 from last week’s closing quotes of 0.6806, 0.9235, and 1.0911, respectively. The Aussie may test resistance near 0.69 against the greenback, 0.93 against the loonie, and 1.10 against the kiwi.

Looking ahead, the Confederation of British Industry is slated to publish monthly Industrial Trends survey data at 6:00 am ET. The order book balance is seen at -23 percent compared in September to -22 percent in August.

In the New York session, Canada’s new housing price index for August, the U.S. Chicago Fed national activity index for August, and U.S. S&P Global flash PMI data for September are slated for release.

Final Thoughts

The Australian dollar’s recent strength can be attributed to traders anticipating the Reserve Bank of Australia’s (RBA) decision to maintain its interest rate at 4.35%. Despite ongoing inflationary pressures, robust labor market data provides the RBA with a reason to hold steady.

The backdrop of China’s central bank injecting liquidity and lowering short-term policy rates also supports the Australian economy, as China is a key trading partner. With rising oil prices and geopolitical tensions in the Middle East adding further global uncertainty, the Aussie has been gaining traction against major currencies like the yen and euro, indicating market optimism for continued economic stability.

However, there are still underlying concerns, particularly with Australia’s weakening manufacturing sector, as highlighted by Judo Bank’s latest data showing a contraction in manufacturing PMI. This suggests that while the Aussie has found short-term strength, the broader economic environment remains fragile.

The balance between inflationary pressures and a contracting manufacturing sector will likely guide future RBA decisions, with traders closely watching upcoming economic data to assess how sustainable the Australian dollar’s uptrend will be. As global markets remain volatile, the Australian dollar’s performance will also hinge on external factors like China’s economic recovery and the evolving geopolitical landscape.

Article Source: RTTNews

Leave a Reply

Your email address will not be published. Required fields are marked *