Australian Dollar appreciates following PBoC injecting liquidity, lower PMI data

• The Australian Dollar receives support from the hawkish sentiment surrounding the upcoming RBA monetary policy decision.
• The AUD could have received support as the PBoC injected liquidity into the banking system.
• The AUD/USD pair remains solid as the RBA is expected to keep Official Cash Rate steady at 4.35% on Tuesday.

The Australian Dollar (AUD) gains ground against the US Dollar (USD) despite the weaker Purchasing Managers Index (PMI) data released on Monday. The AUD/USD pair is likely appreciating due to the People's Bank of China (PBoC) injecting liquidity into the banking system. As close trade partners, developments in the Chinese economy can have a substantial impact on Australian markets.

The People's Bank of China (PBoC) injected CNY 74.5 billion in liquidity into the banking system via a 14-day reverse repo, with the rate lowered to 1.85% from 1.95%. Additionally, the Chinese central bank also injected CNY 160.1 billion in liquidity via a 7-day reverse repo, with the rate unchanged at 1.7%.

The AUD could also gain ground due to the hawkish expectations around the Reserve Bank of Australia's (RBA) upcoming interest rate decision scheduled for Tuesday. The RBA is anticipated to keep the Official Cash Rate (OCR) steady at 4.35%, supported by robust labor market data and ongoing inflationary pressures.

The US Dollar (USD) may depreciate as Federal Reserve (Fed) policymakers predict an additional 75 basis points (bps) of rate cuts in 2024, following an aggressive 50 basis point rate cut to a 4.75-5.00% range last week.

Daily Digest Market Movers: Australian Dollar remains solid due to hawkish sentiment surrounding the RBA

• Australian Treasurer Jim Chalmers is working to establish a new monetary policy board at the Reserve Bank of Australia, but he needs the support of the Greens Party to move forward. The Greens have stated they will only back changes at the RBA if there is a commitment to lowering interest rates.
• Philadelphia Fed President Patrick Harker stated on Friday that the US central bank has effectively steered through a challenging economic landscape in recent years. Harker compared monetary policy to driving a bus, where it's essential to balance speed.
• Australia's Judo Bank Composite PMI declined to 49.8 in September from 51.7 in August, indicating a contraction in business activity as slower growth in the services sector was unable to counterbalance a deeper slump in manufacturing output. The Services PMI fell to 50.6 in September from 52.5 previously, while the Manufacturing PMI decreased to 46.7 from 48.5 in August.
• On Friday, the People's Bank of China (PBoC) opted to keep its one-year and five-year Loan Prime Rates (LPRs) unchanged at 3.35% and 3.85%, respectively.
• Commonwealth Bank (CBA) has adjusted its expectation for the first Reserve Bank of Australia rate cut of 25 basis points, moving it from November 2024 to December 2024. This shift follows a robust employment rate and a continued "hawkish" outlook from the central bank, according to Yahoo Finance.
• Australian Employment Change came in at 47.5K in August, down from 48.9K (revised from 58.2K) in July, but well above the consensus forecast of 25.0K. The Unemployment Rate remained steady at 4.2% in August, in line with both expectations and the previous month's figure, according to data released by the Australian Bureau of Statistics (ABS).
• Reserve Bank of Australia (RBA) Governor Michele Bullock emphasized that it is premature to consider rate cuts given the persistently high inflation. Additionally, RBA Assistant Governor Sarah Hunter noted that while the labor market remains tight, wage growth seems to have peaked and is expected to slow further.

Technical Analysis: Australian Dollar remains above 0.6800 as it attempts to return to ascending channel

The AUD/USD pair trades near 0.6820 on Monday. Technical analysis of the daily chart indicates that the pair is testing the lower boundary of the ascending channel pattern, suggesting a weakening bullish bias. However, the 14-day Relative Strength Index (RSI) is still above 50, so further price movement of the area of the contest will provide a clearer indication of the pair's trend.

With the AUD/USD pair currently testing the lower boundary of the ascending channel near the nine-month high of 0.6839 reached on September 19, a bounce above this level could propel the pair toward the upper boundary of the ascending channel, around the 0.6890 level.

On the downside, the AUD/USD pair may find support around the nine-day Exponential Moving Average (EMA) at 0.6771, with the next key support at the psychological level of 0.6700. A break below the latter could lead the pair toward its six-week low at 0.6622.

AUD/USD: Daily Chart