Australian Dollar holds gains despite a stable US Dollar, awaits US ADP Employment Change

The Australian Dollar (AUD) retraces its recent losses from the previous session against the US Dollar (USD) on Wednesday. The AUD receives support from the hawkish Reserve Bank of Australia (RBA) regarding its interest rate trajectory and Australia's largest trading partner China’s stimulus measures.

The AiG Industry Index slightly improved in September, rising 4.9 points to -18.6 from the previous reading of -23.5, though it still signals contraction for the 29th consecutive month. Meanwhile, the AiG Manufacturing PMI continued its decline, falling 2.8 points to -33.6 from -30.8 prior, marking the lowest level in trend terms since the series began.

The upside of the AUD/USD pair could be restrained as the US Dollar receives support from the market caution amid rising geopolitical tensions in the Middle East. Iran launched over 200 ballistic missiles at Israel, prompting Prime Minister Benjamin Netanyahu to vow retaliation against Tehran for the Tuesday attack.

Traders will now focus on the upcoming US ADP Employment Change and Fedspeak for further direction.

Daily Digest Market Movers: Australian Dollar advances as traders expect RBA to hold policy restrictive

• The CME FedWatch Tool indicates that markets are assigning a 63.1% probability to a 25 basis point rate cut by the Federal Reserve in November, while the likelihood of a 50-basis-point cut is 36.9%, down from 58.2% a week ago.
• The US Dollar received downward pressure from the weaker-than-expected ISM Manufacturing PMI released on Tuesday. The index came at 47.2 for September, matching the reading with August's print but came in below the market expectation of 47.5.
• The Australian Bureau of Statistics (ABS) reported the Retail Sales on Tuesday, the primary gauge of Australia’s consumer spending, which rose 0.7% month-over-month in August, exceeding the market expectations of a 0.4% increase.
• Federal Reserve (Fed) Chairman Jerome Powell said on Monday that the central bank is not in a hurry and will lower its benchmark rate ‘over time.’ Powell added that the recent half-point interest rate cut should not be seen as an indication of similarly aggressive future actions, noting that upcoming rate changes are likely to be more modest.
• China's Caixin Manufacturing Purchasing Managers' Index (PMI) fell to 49.3 in September, indicating contraction, down from 50.4 in August. Meanwhile, China’s NBS Manufacturing PMI improved to 49.8 in September, up from 49.1 in the previous month and surpassing the market consensus of 49.5.
• St. Louis Federal Reserve President Alberto Musalem stated on Friday, according to the Financial Times, that the Fed should begin cutting interest rates "gradually" following a larger-than-usual half-point reduction at the September meeting. Musalem acknowledged the possibility of the economy weakening more than anticipated, saying, "If that were the case, then a faster pace of rate reductions might be appropriate."
• On Friday, the US Core Personal Consumption Expenditures (PCE) Price Index for August, increased by 0.1% MoM, falling short of the expected 0.2% rise, aligning with the Federal Reserve's outlook that inflation is easing in the US economy. This has reinforced the possibility of an aggressive rate-cutting cycle by the Fed.

Technical Analysis: Australian Dollar grapples to remain above 0.6900 within the ascending channel

The AUD/USD pair trades near 0.6910 on Wednesday. A daily chart technical analysis shows that the pair is attempting to reintegrate into the ascending channel. This shows the bullish bias is in play. The 14-day Relative Strength Index (RSI) also remains above the 50 level, supporting the ongoing bullish sentiment.

In terms of resistance, a successful return to the ascending channel would reinforce the bullish bias and support the AUD/USD pair to aim for the area near the upper boundary of the channel, around the psychological level of 0.7000.

On the downside, the immediate support appears at the nine-day Exponential Moving Average (EMA) at the 0.6869 level. A break below this level could weaken the bullish bias and lead the AUD/USD pair to navigate the region around its seven-week low of 0.6622.

AUD/USD: Daily Chart