RBA Monitors Inflation as Consumer Sentiment Rises; U.S. Dollar Gains Amid Rate Cut Expectations

The Reserve Bank of Australia (RBA) remains unconcerned about inflation expectations becoming de-anchored in the near term. Assistant Governor Sarah Hunter emphasized that household expectations have largely overlooked the recent inflation spike, countering previous expectations. The RBA noted a weak link between wage and inflation expectations and is monitoring this dynamic closely. With the cash rate steady at 4.35% since November, the RBA aims to control inflation within its target range of 2%-3% while supporting employment, although core inflation remains high at 3.9%. Market indicators suggest only a 40% chance of a rate cut in December.

Meanwhile, a Foodbank Australia report highlights growing food insecurity, with nearly one million Australian households struggling, including over two-thirds of single-parent households. The cost-of-living crisis is forcing many to cut basic food essentials as rising costs of housing, energy, and groceries persist.

On a brighter note, Australian consumer sentiment reached its highest level in over two years in October, driven by confidence that rates won’t rise further and international rate cuts. The Westpac-Melbourne Institute index rose by 6.2%, with sentiment buoyed by stable local rates and a strong labor market, though housing and inflation worries remain significant. Westpac predicts that the RBA will maintain rates through year-end and ease its stance in the coming months.

The U.S. dollar saw gains on Tuesday, reaching two-month highs as traders anticipate gradual Federal Reserve rate cuts over the next 18 months. While a dip in the dollar occurred earlier in the day—due to reports that Israel won’t target Iranian oil, reducing supply concerns and oil prices—the dollar’s upward trend remains supported by ongoing geopolitical and economic uncertainties. A resilient U.S. economy and a mild inflation increase in September have tempered expectations for aggressive Fed rate cuts, with market sentiment favoring a 25 basis-point reduction in November and pricing in additional modest rate cuts through 2025.

In a related update, the Federal Reserve Bank of New York reported that Americans expect inflation to remain steady at 3% over the next year, but slightly higher long-term at 2.7% in three years and 2.9% in five. The report also noted an increase in concerns over credit access, with the probability of loan delinquencies rising to 14.2%, the highest since 2020. Low-income households show the highest expected delinquency rates, though expectations among higher-income households also rose. This comes as Fed officials weigh the pace of rate cuts, with Fed Governor Christopher Waller advocating caution given the robust September job data. New York Fed President John Williams remains confident that inflation is on track to hit the 2% target, noting stable inflation expectations. The report also indicated a dip in expected house price increases and slightly declining expectations for rent, gas, and medical expenses. Thus, the AUD/USD pair is anticipated to fluctuate within its current to lower range during this period, with any appreciation in the AUD likely to remain constrained over the medium term.

Data for Technical Analysis (1H) CFD AUD/USD

Resistance : 0.6699, 0.6702, 0.6706

Support : 0.6691, 0.6688, 0.6684

1H Outlook

Source: TradingView

Buy/Long 1 If the support at the price range 0.6683 - 0.6691 is touched, but the support at 0.6691 cannot be broken, the TP may be set around 0.6699 and the SL around 0.6679, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 0.6699 - 0.6707, TP may be set around 0.6725 and SL around 0.6687, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 0.6699 - 0.6707 is touched, but the resistance at 0.6699 cannot be broken, the TP may be set around 0.6688 and the SL around 0.6711, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 0.6683 - 0.6691, TP may be set around 0.6668 and SL around 0.6703, or up to the risk appetite.       

Pivot Points Oct 16, 2024 04:22AM GMT