Australian dollar steady after slide

AUD/USD has steadied today after two days of sharp swings. In the European session, the Australian dollar is trading at 0.6317, up 0.09%.

It was a brutal start to the week for the Australian dollar, which sank 1.1 per cent on Monday. The manufacturing and services PMIs both slowed in October, pointing to weaker economic activity. Manufacturing expanded but softened, as the Manufacturing PMI slowed to 52.8, down from 53.5. The Services PMI declined to 49.0, down from 50.6 points and its lowest level since September 2021. The decline in business activity is attributable to the continuing rise in interest rates and economic uncertainties. Australia’s labour market remains strong, but the steady diet of rate increases has slowed economic activity.

Australia’s CPI expected to climb

Australia releases CPI for Q3 on Thursday. The markets are bracing for an uptick in inflation. Headline CPI is expected to rise to 7.0%, up from 6.1% in Q2. Core inflation is projected to rise to 5.6%, up from 4.9%. The RBA says inflation will peak in Q4 2022 at 7.5% but will not fall back to the RBA’s 2% target until 2024. Tomorrow’s inflation report is the last key event before the RBA meets next week, which gives the inflation data added significance and could have a strong impact on the Australian dollar.

The RBA surprised the markets with a 0.25% hike earlier this month, which was smaller than expected. The RBA appears to have completed its front-loading, which saw the central bank deliver four straight increases of 0.50%. The markets are expecting another 0.25% hike at the meeting next week, with the RBA hopeful that inflation will start to ease shortly without the need for oversize rate hikes, which would make a recession more likely.

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AUD/USD Technical

• AUD/USD continues to test support at 0.6250. The next support level is 0.6121
• There is resistance at 0.6331 and 0.6460

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