Australian Dollar edges higher as US Dollar depreciates ahead of PMI data

The Australian Dollar (AUD) edges higher against the US Dollar (USD) after the release of the domestic Purchasing Managers Index (PMI) on Thursday. Additionally, the AUD/USD pair gained as the USD weakened slightly, driven by a modest dip in US Treasury yields. 2-year and 10-year yields on US Treasury bonds stand at 4.07% and 4.23%, respectively, at the time of writing.

The AUD could get further support from the prevailing hawkish sentiment surrounding the Reserve Bank of Australia (RBA), bolstered by the positive employment data. Earlier this week, RBA Deputy Governor Andrew Hauser noted that the labor participation rate is remarkably high and emphasized that while the RBA is data-dependent, it is not data-obsessed.

The US Dollar faced downward pressure following the release of the Federal Reserve’s (Fed) Beige Book on Wednesday. The latest report indicated that economic activity was "little changed in nearly all Districts," in contrast to August's report, where three Districts reported growth and nine showed flat activity.

Traders are likely to keep an eye on the S&P Global Purchasing Managers Index (PMI), a leading indicator gauging US private-business activity in the manufacturing and services sector, which is set to be released on Thursday.

Daily Digest Market Movers: Australian Dollar receives support from the hawkish mood surrounding the RBA

• According to the CME FedWatch Tool, there is an 88.9% probability of a 25-basis-point rate cut, with no expectation of a larger 50-basis-point cut.
• Australia's Judo Bank Composite PMI slightly rose to 49.8 in October, up from 49.6 in September, signaling a second straight month of contraction in private sector output. The Services PMI inched up to 50.6 from 50.5, marking its ninth consecutive month of expansion, while the Manufacturing PMI dipped to 46.6 from 46.7, continuing its decline.
• In a post on the social media platform X, Federal Reserve Bank of San Francisco President Mary Daly stated that the economy is clearly in a better position, with inflation having fallen significantly and the labor market returning to a more sustainable path.
• On Monday, Federal Reserve Bank of Minneapolis President Neel Kashkari highlighted that the Fed is closely monitoring the US labor market for signs of rapid destabilization. Kashkari cautioned investors to anticipate a gradual pace of rate cuts over the coming quarters, suggesting that any monetary easing will likely be moderate rather than aggressive.
• The People's Bank of China (PBoC) reduced the 1-year Loan Prime Rate (LPR) to 3.10% from 3.35% and the 5-year LPR to 3.60% from 3.85%, in line with expectations. Lower borrowing costs are anticipated to stimulate China's domestic economic activity, potentially increasing demand for Australian exports.
• National Australia Bank revised its projection for the Reserve Bank of Australia (RBA) in a note last week. "We have brought forward our expectations for the timing of rate cuts, now anticipating the first cut in February 2025, instead of May," the bank stated. They continue to foresee gradual cuts, with rates expected to decrease to 3.10% by early 2026.

Technical Analysis: Australian Dollar remains below 0.6650, close to six-week lows

The AUD/USD pair trades around 0.6640 on Thursday. Technical analysis of the daily chart suggests a short-term bearish outlook as the pair remains below the nine-day Exponential Moving Average (EMA). Additionally, the 14-day Relative Strength Index (RSI) is below 50, reinforcing the bearish sentiment.

Regarding support, the AUD/USD pair could retest its two-month low of 0.6614, last seen on Wednesday. The next key support appears at the psychological level of 0.6600.

On the upside, resistance is expected at the nine-day EMA at 0.6680, followed by the 50-day EMA at 0.6728. A break above these levels could open the door for a potential move toward the psychological resistance of 0.6800.

AUD/USD: Daily Chart