The Australian Dollar has enjoyed a productive week, courtesy of the US rate cut, a still-hawkish RBA and a fresh round of Chinese stimulus. The AUDUSD rate has rallied 3.6% from its monthly lows, due in large part to the shrinking yield differential versus the USD. Tuesday’s RBA meeting showed that while the Australian central bank no longer seems to be considering a rate hike, a potential rate cut still appears to be many months away (perhaps Q1 or Q2 2025), depending upon how CPI data shapes up between now and year-end. In Asian trading hours on Wednesday, the AUDUSD rate was trading around 0.6905 near its highs for the year. The AUDUSD rate may fancy taking a run towards the 0.70 level should the USD lose further ground.
The Dollar Index (DXY) has been sliding this week on soft US consumer confidence data and expectations or more steep rate cuts from the FOMC. The DXY was sitting at 100.3 on Wednesday, with some minor support at 100.18 standing in the way of a possible slide below the first time this year. There is a lot of ‘Fed Speak’ (Federal Reserve officials making speeches) on the economic calendar this week, and if markets become more convinced about a proactive Fed when it comes to rate cuts this could put the greenback under further pressure.
With the USD taking a step lower, gold was able to continue its ascent. The precious metal chalked up yet another all-time high in what has become a familiar theme in 2024. The over-sized rate cut from the Fed last week, combined with ongoing tensions in the Middle East, mean that gold is benefitting from both reduced opportunity costs and increasing safe-haven flows. On Wednesday, gold was trading at $2658, just shy of resistance at $2668, while support levels await at $2634 and $2612. Gold has been one of the stand-out performers in 2024 and one of the main reasons for this has been its ability to act as a ‘multi-purpose’ asset – one that can rise in the face of ongoing geopolitical risks as well as against the backdrop of interest rates moving lower. The concurrence of these events has effectively given the gold price a double shot of momentum.
Elsewhere, crude oil is having a better time of things, with lower interest rates and new Chinese stimulus measures helping to offset some demand worries which have hampered energy markets in recent months. China’s moves to lower the Reserve Requirement Ratio (RRR), as well as changes to the interest rates on existing mortgages and lower downpayment requirements should give a lift to their economy, but I suspect that further monetary policy steps will be needed (such as cutting the LPR rates) in combination with fiscal measures to really turn the economic ship around. US crude has bounced 10% higher from its early September lows to $71.35 with the demand outlook looking a little more settled.
Looking ahead, US Core PCE Price Index data on Friday will be a key number to watch, given that the Fed are known to watch this figure closely. Expectations are that we will see a 0.2% m/m rise, which would be an acceptable result for the FOMC. Though if we did see a surprise result to the upside, we might see some of the current dovish US interest rate projections scaled back. Financial markets will remain sensitive to any data or comments from central bank officials which potentially causes a recalibration of the interest rate trajectory.
