The Australian Dollar (AUD) advanced against the US Dollar (USD) on Friday, recovering losses from the previous session. The pair’s gains came in response to cautious remarks from Reserve Bank of Australia (RBA) Governor Michele Bullock, while the US Dollar held steady amid a mixed outlook on Federal Reserve (Fed) monetary policy and ongoing domestic political uncertainty.
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RBA Bullock Highlights Sticky Services Inflation
RBA Governor Bullock stated that services inflation remains persistent, emphasizing the need for monetary policy caution. While second-quarter inflation came slightly above expectations, Bullock noted it is trending in the right direction, suggesting that the Australian economy continues to moderate inflationary pressures.
Bullock further highlighted that the labor market remains tight but may be approaching balance, reflecting resilience in employment alongside moderating wage pressures. Traders are closely monitoring Bullock’s remarks, as they offer guidance on whether the RBA may consider interest rate adjustments in upcoming policy meetings.
Consumer Inflation Expectations and Housing Data Support AUD
Australia’s Consumer Inflation Expectations for October rose to 4.8% from 4.7%, marking the highest reading since June. This uptick fuels concerns that inflation could exceed forecasts in the third quarter, supporting the RBA’s cautious stance.
Following the September decision to keep the Official Cash Rate (OCR) unchanged at 3.6%, markets anticipate that the RBA may maintain current rates in the near term.
On the housing front, private house approvals declined 2.6% month-over-month (MoM) in August to 9,027 units, reversing a 1.3% rise in July. Additionally, seasonally adjusted building permits fell 6% MoM to 14,744 units, marking the second consecutive monthly decline. The weakening housing sector adds nuance to the RBA’s inflation outlook, suggesting slower domestic demand.
Meanwhile, the University of Melbourne reported a decline in Westpac Consumer Confidence, dropping 3.5% MoM to 92.1 in October, marking the fastest fall since April.
ANZ Job Advertisements fell 3.3% MoM, signaling a cooling in the labor market demand. Despite these mixed indicators, the Australian Dollar maintains its resilience, supported by inflationary pressures and RBA commentary.
US Dollar Holds Steady Amid Dovish Fed Signals
The US Dollar Index (DXY), which measures the USD against six major currencies, remained around 99.40, steady after a four-day winning streak. The US government shutdown continues to weigh on market sentiment, as Senate negotiations remain deadlocked.
Federal Open Market Committee (FOMC) Minutes from September suggest policymakers are leaning toward further rate cuts this year. Most members supported the September rate cut, with some signaling further reductions, while others favored a cautious approach due to lingering inflationary concerns.
The CME FedWatch Tool indicates a 95% probability of a rate cut in October and an 82% chance of another reduction in December. Fed officials’ comments remain mixed:
Stephen Miran, Fed Board Governor, described inflation as linked to population increases and emphasized the need for monetary easing.
Neel Kashkari, Minneapolis Fed President, adopted a cautious tone, noting uncertainty around tariff-led inflation but bullish sentiment on labor market recovery.
Jeffrey Schmid, Kansas City Fed President, maintained a hawkish stance, stressing the need to preserve inflation credibility.
These divergent views contribute to a stable USD despite growing expectations of Fed easing, allowing the AUD/USD pair to regain footing.
Technical Outlook: AUD/USD Rebounds
The AUD/USD pair is trading near 0.6570, showing signs of rebounding toward the ascending channel, indicating a revival of bullish bias. Technical indicators provide mixed signals: the 14-day Relative Strength Index (RSI) remains below 50, suggesting medium-term bearish pressure, while support and resistance levels define potential price action.
Immediate support is at the 50-day Exponential Moving Average (EMA) of 0.6563. A break below may lead the pair toward the four-month low of 0.6414 (August 21) and the five-month low of 0.6372.
Upside resistance targets the nine-day EMA at 0.6582, with further gains potentially reaching the 12-month high of 0.6707 (September 17) and the channel’s upper boundary around 0.6810.
The technical structure suggests a cautiously bullish outlook, supported by RBA comments, persistent inflation, and resilient AUD fundamentals.
Summary
The Australian Dollar continues to gain against the US Dollar, underpinned by sticky services inflation, moderate economic data, and RBA commentary signaling a cautious approach. Meanwhile, the USD remains steady, influenced by mixed Fed signals and government shutdown uncertainties.
Technical analysis highlights that the AUD/USD pair is rebounding within an ascending channel, with support at the 50-day EMA and resistance near the nine-day EMA and 12-month highs. Market participants remain alert to inflation dynamics, labor market conditions, and global geopolitical developments, which will continue to shape the AUD/USD trajectory.
