AUD/USD shrugs after weak confidence data

The Australian dollar continues to have a quiet week. AUD/USD is trading at 0.6671 in the European session, up 0.17% today at the time of writing.

With the Australian economy sputtering, it should come as no surprise that today’s confidence indicators pointed downward. Westpac consumer confidence change declined 0.5% m/m in September, falling from 85.0 to 84.6. This was better than the forecast of -1.2% but points to pessimistic consumers who remain nervous about potential job losses in a weak economy.

The National Australia Bank business confidence index fell to -4 in August, its lowest level since November 2023. This followed back-to-back gains. Confidence was down across a range of sectors and business expectations also declined. Business confidence has been stronger than consumer sentiment this year but has now converged as both are showing deep pessimism about economic conditions.

The financial markets have been showing strong swings and the market pricing of a Federal Reserve rate cut are also moving wildly. After Friday’s lukewarm nonfarm payrolls report, the odds of a 50-basis point cut shot up to 59%, up from 43% before the release, according to CME’s FedWatch. That has plunged to just 27% on Tuesday, ahead of tomorrow’s CPI report. We could see the rate-cut odds continue to swing if inflation surprises the markets, which expect a 2.6% gain for August, down from 2.9% in the previous reading.

The Fed meets on Sept. 18 and is widely expected to deliver its first rate cut after a lengthy rate-hike cycle. Now that inflation is largely under control, the Fed is keeping a close eye on the US labor market as it tries to guide the economy to a soft landing. The labor market hasn’t crashed but recent nonfarm payrolls numbers indicate that the labor market is cooling and that could mean a series of rate cuts extending into 2025.

AUD/USD Technical

• AUD/USD is testing resistance at 0.6666. Above, there is resistance at 0.6684
• 0.6643 and 0.6625 are the next support levels

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