The Australian dollar has been decreasing since July as commodity dollars have fallen due to a stronger USD, as well as China’s economy displaying significant deterioration in several areas. Although, we have seen some resilience in the last few weeks in commodity dollars, which have been holding better against the USD that other currencies which have been crashing lower.

Despite a 3 point jump in Australian consumer inflation CPI during August, which brought the headline CPI YoY to 5.2%, the price fell below 0.64, which had previously served as a support level, and we witnessed a slide to 0.6330s on Wednesday. But, in the next two days the price reversed higher and surged above 0.65 ahead of the PCE price index inflation from the US on Thursday, which came in softer but the market ignored it nonetheless.

The USD reversed back up while risk assets turned lower. AUSD/USD found resistance at the 50 daily SMA (yellow) as well and on Friday it formed an upside-down pin, which is a bearish reversing signal. Yesterday we saw a strong bearish day as commodity dollars retreated after the softer Caixin manufacturing and services OMI numbers from China over the weekend, so this pair is back at support now, which will likely break decisively this time.

The Reserve Bank of Australia held it’s meeting also earlier today, with no one expecting a rate hike, since they have already stopped. Below is the rate decision and the policy statement from the RBA:

Reserve Bank of Australia Cash Rate Policy Meeting

• RBA leaves its cash rate unchanged at 4.10%, as widely expected
• Previous rates were 4.10%
• Some further tightening of monetary policy may be required
• Board remains resolute in its determination to return inflation to the target
• Recent data are consistent with inflation returning to the target range over the forecast horizon
• Higher interest rates are working to establish a more sustainable balance between supply and demand in the economy
• Inflation in Australia has passed its peak but is still too high and will remain so for some time yet.
• Timely indicators on inflation suggest that goods price inflation has eased further, but the prices of many services are continuing to rise briskly
• Central forecast is for CPI inflation to continue to decline and to be back within the 2–3 per cent target range in late 2025
• There are significant uncertainties around the outlook
• Returning inflation to target within a reasonable timeframe remains the Board’s priority
• Inflation is coming down, the labour market remains strong and the economy is operating at a high level of capacity utilisation

Also as expected is the hawkish tilt leaving the option open for further rate hikes that ‘may be required’. The comments on inflation seem to me that the Bank is quite happy with the progress being made. There is that nod to high services inflation, which is a concern that may prompt a November rate hile. We await the October 25 publication of the quarterly CPI data for clues on this.

AUD/USD Live Chart