Business confidence shines but Aussie slips

The Australian dollar is in negative territory in the Tuesday session. AUD/USD is currently trading at 0.7388, down 0.44% on the day.

The RBA has been consistent in projecting a rate hike in 2024 and reiterated this stance on Friday, when it released its quarterly monetary policy statement. The bank acknowledged that inflation has moved higher but said that it would be patient with regard to a rate hike. The markets, however, do not share the RBA’s stance and are much more hawkish on a rate move, with projections of a rate hike in 2023 or even in late 2022 if economic conditions are suitable. On Monday, ANZ Bank cut its home loan rate, a sign that the major bank is gearing for an earlier than expected interest rate rise from the RBA. There is a disconnect between RBA guidance and market expectations and the central bank will have to tread carefully as it pushes back against market sentiment.

The removal of lockdowns in Sydney and Melbourne has raised optimism about the economy, and the NAB Business Confidence for October soared to 21, up from 10 points beforehand. Will Westpac Consumer Sentiment, which will be released later today, follow suit? The index declined by 1.5% in October and a rebound could boost the Australian dollar. Conversely, another decline could disappoint investors and weigh on the Aussie.

In the US, the focus is on inflation, which remains high. The PPI reports didn’t have any effect on the US dollar, as both PPI and Core PPI were within expectations, with readings of 0.6% and 0.4%, respectively. The US releases CPI on Wednesday, and this event could have a strong impact on the movement of AUD/USD. If CPI is stronger than expected, it will reignite discussion of an accelerated taper by the Fed and the potential bringing forward of a rate hike and would be bullish for the US dollar.

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AUD/USD Technical

• There is resistance at 0.7506 and 0.7609
• AUD/USD has support at 0.7330 and 0.7257

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