AUD/USD set for biggest monthly fall since September 2022

AUD/USD’s weekly close and October decline

AUD/USD closed lower last week at 0.6604 (-1.52%), marking its fourth consecutive week of declines.

As month-end approaches, AUD/USD is set for a decline of approximately 4.8% in October, its worst monthly performance since September 2022. This places AUD/USD as the third-worst-performing currency for October, trailing only the Japanese yen (JPY) and New Zealand dollar (NZD).

US economic data and USD strength

US economic data following the release of September’s non-farm payrolls has been stronger than expected, including the S&P Global Composite purchasing managers' index (PMI), initial jobless claims, and durable goods excluding transport. This string of robust economic indicators has prompted traders to revise their outlooks, now anticipating fewer aggressive Federal Reserve (Fed) interest rate cuts by year-end, thereby strengthening the US dollar (USD).

Upcoming US election and potential impact on AUD/USD

As the US election approaches, Donald Trump leads in six pivotal battleground states, suggesting a narrow path to reclaiming the White House. Betting markets currently indicate a 40% chance of a Republican 'red sweep' - a Republican President with a Republican-controlled Congress. This outcome could lead to higher tariffs, inflation, deficits, and yields, potentially boosting USD and impacting AUD/USD negatively.

Conversely, a Kamala Harris victory with a divided Congress - the next most probable scenario - would likely sustain current Fed policy, favouring its easing cycle and potentially supporting AUD/USD.

In addition, the timing of China’s National People’s Congress Standing Committee meeting, which is expected to reveal the country's fiscal stimulus package, may be postponed until after the US election outcome. A Trump win could prompt a larger Chinese stimulus package to counterbalance potential tariffs.

Monthly CPI indicator

Date: Wednesday, 30 October at 11.30 am AEDT

In the second quarter (Q2) 2024, headline inflation rose by 1%, resulting in an annual rate of 3.8% year-on-year (YoY) marking the first annual consumer price index (CPI) increase since the fourth quarter (Q4) 2022. The Reserve Bank of Australia’s (RBA) preferred measure, the trimmed mean, increased by 0.8% quarter-on-quarter (QoQ), with its annual rate reaching 3.9% YoY, slightly below the previous period’s 4%. Despite this decline, it remains above the RBA’s target range of 2 - 3%.

For the third quarter (Q3) 2024, expectations are for headline inflation to increase by 0.4% QoQ, equating to an annual rate of 2.8%. The trimmed mean is expected to rise by 0.7% QoQ, potentially lowering its annual rate to 3.4%.

The Australian interest rate market is pricing in 8 basis points (bps) of a 25 bp RBA rate cut for December. A trimmed mean reading of 3.4% or lower on Wednesday could significantly increase the probability of an RBA rate cut by year-end.

AU monthly CPI indicator chart

AUD/USD technical analysis

AUD/USD has been trending downward since rejecting a multi-month downtrend resistance at 0.6900 - 0.6910 in late September, traced back to the 0.8007 high of February 2021 and the 1.1081 high from July 2011.

AUD/USD weekly chart

Towards the end of last week, persistent downward pressure on AUD/USD pushed it through the 0.6650 - 0.6625 support region, including the 200-day moving average at 0.6627.

This move paves the way for a sell-off reaching the next downside support at 0.6500. A potential 'red sweep' in next week’s US election could hasten a decline towards multi-week trend channel support at approximately 0.6380 - 0.6350.

The first sign of selling pressure easing would be a daily close above resistance around 0.6680 - 0.6720.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 28 October 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.}