The Australian dollar is plunging against the US dollar, obeying the stronger greenback and simultaneous weakening of the Aussie. Exactly a week ago, on September 30, the AUD/USD pair reached a 19-month high, hitting 0.6945. However, today the instrument has hit a three-week low, settling at about 0.67.
The surge at the end of September was due to the weakness of the US dollar, which was under pressure from the market's expectation of Fed's further monetary easing. At the same time, the Australian dollar welcomed the decisions of the People's Bank of China (PBOC). To recap, the PBOC decided to lower interest rates and inject additional liquidity into the financial system while also easing the burden of mortgage loans. As a result of these decisions, iron ore, which is crucial for the Australian economy, jumped to multi-month highs.
Australian macroeconomic statistics also supported AUD/USD buyers. For example, the ANZ business confidence indicator jumped to 60.9, surpassing the forecasted rise to 43.0. This indicator has been growing for the third consecutive month, reaching a one-year high in September.
Riding the wave of this news, the AUD/USD pair nearly reached the 0.70 level but then sharply reversed, falling by nearly 200 pips.
It turned out that the AUD/USD rise was solely driven by the weakness of the US dollar. Once the greenback regained strength in response to strong September Nonfarm Payrolls data, the price turned down. The pair's rise was essentially built on shaky grounds—more "in spite of" than "because of."
For example, the optimism surrounding the Chinese central bank's stimulus measures quickly faded. Many analysts expressed doubts that these steps would be enough to solve long-term issues, such as deflationary pressure and the real estate crisis.
Moreover, the Australian dollar ignored the recent inflation growth report, despite it reflecting a downward trend. The Consumer Price Index (CPI) fell to 2.7% on year in August, an inch lower than the forecasted decline to 2.8%. Firstly, this inflation indicator fell within the Reserve Bank of Australia's (RBA) target range of 2-3%. Secondly, the index has shown a consistent downward trend over the past three months, which will inevitably impact the quarterly data that the RBA primarily focuses on.
In the context of the Aussie's vulnerability, one must also consider the results of the September RBA meeting. For the first time since March, the regulator did not discuss the option of raising interest rates. At the previous three meetings, the central bank had considered two options: maintaining the status quo and tightening policy. Now, the latter option has been removed from consideration. At the same time, RBA Governor Michele Bullock did not rule out a rate cut. Although she spoke hypothetically and without a specific timeframe, the mere fact that a "dovish" scenario is already being discussed matters a lot.
This is why the minutes of the RBA's September meeting, due to be released tomorrow, October 8, during the Asian session, could put additional pressure on the AUD/USD pair.
Importantly, the final communique did not contain any sensational news. In the accompanying statement, RBA policymakers acknowledged that inflation in Australia continues to slow but remains too high. The regulator also made several standard remarks, stating that the central bank would closely monitor inflation risks and make rate decisions on a meeting-by-meeting basis, depending on incoming data.
If the September meeting minutes contain similar remarks, AUD/USD traders will likely ignore the release. However, if the document hints at possible timing for the first rate cut, the Aussie will come under significant pressure. For example, if the RBA ties a dovish decision to quarterly inflation data or even subtly indicates policy easing in the near future. Such remarks are realistic, as the September RBA meeting was indeed different from the previous ones due to a subtle shift towards a more dovish tone. If the key points of the minutes are also dovish, the downward trend in AUD/USD will likely continue.
From a technical viewpoint, the AUD/USD pair has broken below the middle line of the Bollinger Bands indicator (0.6810) on the daily chart but stalled at the support level of 0.6780 (the Kijun-sen line on the same timeframe). It makes sense to consider selling only after the bears overcome this obstacle. In that case, the first target of the downward move will be 0.6760, the lower line of the Bollinger Bands on the four-hour chart. The main target is lower—at 0.6680, which corresponds to the upper border of the Kumo cloud on the D1 chart.
