The Australian Dollar (AUD) inches higher against the US Dollar (USD) ahead of the Reserve Bank of Australia’s (RBA) policy decision scheduled for Tuesday. The RBA is expected to maintain the Official Cash Rate (OCR) at 4.35%, citing strong labor market conditions and persistent inflationary pressures. Market projections suggest no rate cut before December, with some analysts predicting the first adjustment could occur as late as February or even in the second quarter of 2025.

The ANZ-Roy Morgan Australia Consumer Confidence Index rose by 0.8 points to 84.9 this week. Despite this increase, Consumer Confidence has now remained below the 85.0 mark for 86 consecutive weeks. On a year-over-year basis, the index is up by 8.5 points from 76.4.

The US Dollar (USD) could face challenges as Federal Reserve (Fed) officials forecast further rate cuts totaling 50 basis points (bps) in 2024, following an aggressive 50 bps cut last week. Supporting this outlook, Minneapolis Fed President Neel Kashkari stated on Monday that he expects and supports additional rate cuts in the coming year, per Reuters.

Daily Digest Market Movers: Australian Dollar maintains position due to hawkish mood surrounding the RBA

According to the CME FedWatch Tool, markets are pricing in a 50% chance of 75 basis points to be deducted by the Fed to a range of 4.0-4.25% by the end of this year.

The S&P Global Composite Purchasing Managers Index (PMI) grew at a slower rate in September, registering 54.4 compared to 54.6 in August. The Manufacturing PMI unexpectedly dropped to 47.0, indicating contraction, while the Services PMI expanded more than anticipated, reaching 55.4.

Chicago Fed President Austan Goolsbee noted, “Many more rate cuts are likely needed over the next year, rates need to come down significantly.” Additionally, Atlanta Fed President Raphael Bostic said Monday that the US economy is close to normal rates of inflation and unemployment and the central bank needs monetary policy to "normalize" as well, per Reuters.

The People’s Bank of China (PBoC) injected CNY 74.5 billion in liquidity into the banking system via a 14-day reverse repo, with the rate lowered to 1.85% from 1.95%. Additionally, the Chinese central bank also injected CNY 160.1 billion in liquidity via a 7-day reverse repo, with the rate unchanged at 1.7%.

Australian Treasurer Jim Chalmers is working to establish a new monetary policy board at the Reserve Bank of Australia, but he needs the support of the Greens Party to move forward. The Greens have stated they will only back changes at the RBA if there is a commitment to lowering interest rates.