Australian Dollar extends its losses amid risk-off sentiment

• The Australian Dollar depreciates due to increased risk aversion ahead of the US presidential election.
• The Aussie Dollar may regain its ground due to the hawkish RBA's policy outlook.
• The US Dollar gained ground due to the increased likelihood of a less dovish stance by the Fed in November.

The Australian Dollar (AUD) continues its decline for the second straight session on Monday. However, hawkish comments from the Reserve Bank of Australia (RBA) may limit further losses for the AUD/USD pair. Traders are cautious as they await key domestic inflation data set for release on Wednesday, which could impact RBA's monetary policy outlook.

The Reserve Bank of Australia noted that the current cash rate of 4.35% is sufficiently restrictive to bring inflation within the 2%-3% target range while also supporting employment. As a result, the RBA is unlikely to consider a rate cut as soon as next month.

The US Dollar (USD) strengthens as recent positive economic data from the United States (US) has fueled expectations for a more cautious stance from the Federal Reserve (Fed) in November. According to the CME FedWatch Tool, there is a 92.8% probability of a 25-basis-point rate cut by the Fed in November, with no expectation of a more substantial 50-basis-point cut.

Daily Digest Market Movers: Australian Dollar depreciates due to increased risk aversion

• Over the past three weeks, allies of former President Donald Trump have faced at least 10 court defeats in key battleground states that could impact the outcome of the November 5 election between Republican candidate Trump and his Democratic opponent, Vice President Kamala Harris.
• The heightened uncertainty surrounding the Middle East conflict may have strengthened the safe-haven appeal of the US Dollar (USD). Israel's targeted attack on Iran early Saturday, conducted in coordination with Washington and limited to missile and air defense sites, was more restrained than many had anticipated.
• The US Michigan Consumer Sentiment Index rose to 70.5 in October from 68.9 previously, exceeding the forecast of 69.0. Additionally, Durable Goods Orders dropped by 0.8% month-over-month in September, a smaller decline than the anticipated 1.0% decrease.
• S&P Global has released its preliminary October US Purchasing Managers Index (PMI) readings, showing positive momentum across sectors. The Composite PMI rose to 54.3, up from the previous 54.0. The Services PMI exceeded expectations at 55.3, compared to the forecasted 55.0, and saw a slight increase from the previous 55.2. Meanwhile, the Manufacturing PMI also came in stronger at 47.8, above the expected 47.5, and improving from the prior reading of 47.3.
• Australia's Judo Bank Composite PMI slightly rose to 49.8 in October, up from 49.6 in September, signaling a second straight month of contraction in private sector output. The Services PMI inched up to 50.6 from 50.5, marking its ninth consecutive month of expansion, while the Manufacturing PMI dipped to 46.6 from 46.7, continuing its decline.
• In a post on the social media platform X, Federal Reserve Bank of San Francisco President Mary Daly stated that the economy is clearly in a better position, with inflation having fallen significantly and the labor market returning to a more sustainable path.
• RBA Deputy Governor Andrew Hauser highlighted, last week, the country's strong labor participation rate and stressed that, although the RBA relies on data, it is not overly fixated on it.

Technical Analysis: Australian Dollar moves below 0.6600 within the descending channel

The AUD/USD pair trades around 0.6600 on Monday, with daily chart technical analysis suggesting a short-term bearish outlook. The pair is trending lower within a descending channel pattern, and the 14-day Relative Strength Index (RSI) is approaching 30, reinforcing the bearish sentiment.

On the support side, the AUD/USD pair may test the region near the lower boundary of the descending channel, around the 0.6560 level.

Regarding resistance, the immediate barrier is at the psychological level of 0.6600, followed by the upper boundary of the descending channel at 0.6630. A breakout above this level could allow the pair to test the nine-day Exponential Moving Average (EMA) at 0.6652.

AUD/USD: Daily Chart