AUD/USD on track for a September to remember

Chinese dovish pivot boosts AUD/USD

The AUD/USD finished higher last week at 0.6900 (1.38%), marking its highest weekly close in 20 months. For September, the AUD/USD is on track to lock in a gain of 2.70%, following its 3.20% gain in August.

Last week’s rally in the AUD/USD followed a dovish pivot from Chinese authorities, marked by decisive monetary easing and unprecedented actions to stabilise the stock market and arrest the property market’s prolonged 15-month downturn.

Hot on the heels of last week's announcements, weekend reports revealed that the People’s Bank of China (PBOC) instructed lenders to lower mortgage intrerest rates by the end of October. Additionally, major megacities like Guangzhou, Shanghai, and Shenzhen took significant steps to relax home-buying restrictions.

Market reaction and central bank influence

The response this morning has been impressive as iron ore futures traded on the Singapore Exchange soared 8.18% to $110.50 a metric tonne. Elsewhere within the China complex, Australian Securities Exchange (ASX)-listed mining stocks and Chinese stock markets have extended last week’s gains in spectacular fashion.

The dovish pivot in China followed just a week after the United States Federal Reserve's (Fed) substantial 50 basis point (bp) rate cut. Together, the actions of the two most powerful central banks in the world, along with last week's further ratcheting lower in global oil prices, provide a near-term boost to support growth expectations and Chinese asset prices.

Retail sales data and future risks

The United States election, which is just five weeks away, is the obvious risk to the current rally becoming more durable, bringing significant trade policy risks. In the meantime, recent events in China and risk sentiment will continue to shape AUD/USD movements. As will Tuesday's retail sales data as we move closer to a dovish pivot from the Reserve Bank of Australia (RBA).

Retail sales

Date: Tuesday, 1 October at 11.30am AEST

In July, Australian retail sales stagnated, missing market forecasts of a 0.30% rise. This followed growth of 0.50% in June 2024 and 0.50% in May 2024. Clothing, footwear, and personal accessory retailing (-0.50%) had the most significant fall, followed by department stores (-0.40%) and cafes, restaurants, and takeaway food services (-0.20%). Household goods retailing and other retailing were both unchanged (0.00%). Food retailing was the only industry that rose in July (0.20%).

This month, the expectation is for retail sales to rise by 0.40% month-over-month (MoM). The boost is expected from government cost-of-living rebates, tax cuts, and spending on Father’s Day gifts, which fell on 1 September. Ahead of the data, the rates market is pricing in 19 bps of rate cuts for December and 75 bps of rate cuts by May 2025.

Total monthly turnover chart

AUD/USD technical analysis

The AUD/USD, as viewed on the monthly chart below, is at a 20-month high and on the verge of recording a monthly close above multi-month downtrend resistance at 0.6900, coming from the 1.1081 high from July 2011.

AUD/USD weekly chart

The AUD/USD is currently trading at 0.6928, consolidating its recent gains just below last week’s 0.6937 year-to-date high. Not far above here is the psychological 0.7000 level. A sustained break above 0.7000 opens the way for the AUD/USD to trade towards the next level of upside resistance, the January 2023 high of 0.7158.

On the downside, initial support is viewed at 0.6890 before a medium-term layer of support, formerly resistance at 0.6825/00, expected to be well defended by buyers.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 30 September 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}