Aussie Dollar continue to strengthen against major currencies as RBA kept its Hawkish stance

• The Reserve Bank of Australia (RBA) maintain its interest rate at 4.35% as inflation despite inflation showing signs of progressive downward pressure. Rate is likely to maintain at 4.35%.

• Additional stimulus by the Chinese will see strong correlation in the near future as a direct benefits to the Aussie.

• We believe that the Aussie dollar will likely be the next major currency in-focus after the Yen due to the diverging interest rate between the major G7 currencies, especially the Fed is set to have a larger cut towards end of 2024.

Reserve Bank of Australia maintain its interest rate at 4.35%. Careful consideration despite sluggish economic growth

The RBA has opted to maintain its current interest rate, despite a decline in inflationary pressures, citing that inflation remains neither low nor stable enough to justify a rate cut. However, we anticipate that a rate cut could happen sooner than expected, possibly in December 2024 or January 2025. The decision to keep the rate steady appears to be driven by the desire to ensure inflation consistently stays within the 2-3% target range before committing to a reduction. We believe that Australia Inflation is likely to edge up on the high of 3.8%, nearing 4%.

While GDP has avoided slipping into negative territory, growth remains sluggish due to ongoing inflationary pressures and weakening business and consumer confidence. Housing affordability continues to suffer from negative sentiment, as rising mortgage costs dampen consumer confidence. Consequently, we expect the rate cut may come earlier than anticipated, driven by the slowing growth rate and declining consumer confidence.

The latest data shows unemployment at 4.2%, indicating full employment in Australia. We expect the unemployment rate to remain within the 4.1%-4.2% range through the end of 2024, supported by a healthy labor force participation rate (67%) and strong growth in full-time employment. Additionally, the end-of-year holiday season could boost job demand in the services and hospitality sectors.

The Chinese strong advancement of stimulus will kick the Aussie dollar strength upward

The RBA has opted to maintain its current interest rate, despite a decline in inflationary pressures, citing that inflation remains neither low nor stable enough to justify a rate cut. However, we anticipate that a rate cut could happen sooner than expected, possibly in December 2024 or January 2025. The decision to keep the rate steady appears to be driven by the desire to ensure inflation consistently stays within the 2-3% target range before committing to a reduction. We believe that Australia Inflation is likely to edge up on the high of 3.8%, nearing 4%.

While GDP has avoided slipping into negative territory, growth remains sluggish due to ongoing inflationary pressures and weakening business and consumer confidence. Housing affordability continues to suffer from negative sentiment, as rising mortgage costs dampen consumer confidence. Consequently, we expect the rate cut may come earlier than anticipated, driven by the slowing growth rate and declining consumer confidence.

The latest data shows unemployment at 4.2%, indicating full employment in Australia. We expect the unemployment rate to remain within the 4.1%-4.2% range through the end of 2024, supported by a healthy labor force participation rate (67%) and strong growth in full-time employment. Additionally, the end-of-year holiday season could boost job demand in the services and hospitality sectors.

Federal Reserve aggressive rate cut will fuel more fund flow towards the Aussie dollar

The Fed fund rate still stands at 4.75%-5% after the 50bps cut and is likely to cut aggressively in the month of November. This will actually prop the interest in the Aussie from now towards the year end (Before RBA potentially cut rate). Hence we believe that the Aussie will repeat their currency strength back in 2012-206 era.

Figure 1: GDP growth nowcast, likely to edge up to 1.4%

Figure 2: CPI inflation at 3.5%, may edge up to 4.1%

Technical outlook on AUDUSD – Upside momentum is strong

The Aussie dollar continue to enjoy upside positive gain based on our last report dated 1 Sep 2024. We believe that the Aussie will continue to edge higher beyond 0.6900 in the mid-term based on the positive price action. Below are the key pointers:

1. Ichimoku remain in the positive trend reading after prices trends above all its’ indicator.
2. Long-term MACD is in an early bullish sentiment.
3. The stochastic oscillator continue to rise.

Continue to hold on to buy for AUDUSD. Long-term target price is at 0.7100. Support to watch for a rebound is at 0.6710.

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