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CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money. CFDs are complex financial instruments and come with a high risk of losing money rapidly due to leverage. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

AUD/USD set for biggest monthly fall since September 2022

AUD/USD is down for a fourth week, pressured by strong US data and a firm Federal Reserve outlook. With the US election and Australia’s CPI data ahead, the pair remains at risk of further declines.

AUD/USD Source: Adobe images

AUD/USD’s weekly close and October decline

AUD/USD closed lower last week at 0.6604 (-1.52%), marking its fourth consecutive week of declines.

As month-end approaches, AUD/USD is set for a decline of approximately 4.8% in October, its worst monthly performance since September 2022. This places AUD/USD as the third-worst-performing currency for October, trailing only the Japanese yen (JPY) and New Zealand dollar (NZD).

US economic data and USD strength

US economic data following the release of September’s non-farm payrolls has been stronger than expected, including the S&P Global Composite purchasing managers' index (PMI), initial jobless claims, and durable goods excluding transport. This string of robust economic indicators has prompted traders to revise their outlooks, now anticipating fewer aggressive Federal Reserve (Fed) interest rate cuts by year-end, thereby strengthening the US dollar (USD).

Upcoming US election and potential impact on AUD/USD

As the US election approaches, Donald Trump leads in six pivotal battleground states, suggesting a narrow path to reclaiming the White House. Betting markets currently indicate a 40% chance of a Republican 'red sweep' - a Republican President with a Republican-controlled Congress. This outcome could lead to higher tariffs, inflation, deficits, and yields, potentially boosting USD and impacting AUD/USD negatively.

Conversely, a Kamala Harris victory with a divided Congress - the next most probable scenario - would likely sustain current Fed policy, favouring its easing cycle and potentially supporting AUD/USD.

In addition, the timing of China’s National People’s Congress Standing Committee meeting, which is expected to reveal the country's fiscal stimulus package, may be postponed until after the US election outcome. A Trump win could prompt a larger Chinese stimulus package to counterbalance potential tariffs.

Monthly CPI indicator

Date: Wednesday, 30 October at 11.30 am AEDT

In the second quarter (Q2) 2024, headline inflation rose by 1%, resulting in an annual rate of 3.8% year-on-year (YoY) marking the first annual consumer price index (CPI) increase since the fourth quarter (Q4) 2022. The Reserve Bank of Australia’s (RBA) preferred measure, the trimmed mean, increased by 0.8% quarter-on-quarter (QoQ), with its annual rate reaching 3.9% YoY, slightly below the previous period’s 4%. Despite this decline, it remains above the RBA’s target range of 2 - 3%.

For the third quarter (Q3) 2024, expectations are for headline inflation to increase by 0.4% QoQ, equating to an annual rate of 2.8%. The trimmed mean is expected to rise by 0.7% QoQ, potentially lowering its annual rate to 3.4%.

The Australian interest rate market is pricing in 8 basis points (bps) of a 25 bp RBA rate cut for December. A trimmed mean reading of 3.4% or lower on Wednesday could significantly increase the probability of an RBA rate cut by year-end.

AU monthly CPI indicator chart

AU monthly CPI indicator chart Source: Australian Bureau of Statistics
AU monthly CPI indicator chart Source: Australian Bureau of Statistics
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AUD/USD technical analysis

AUD/USD has been trending downward since rejecting a multi-month downtrend resistance at 0.6900 - 0.6910 in late September, traced back to the 0.8007 high of February 2021 and the 1.1081 high from July 2011.

AUD/USD weekly chart

AUD/USD weekly chart Source: TradingView
AUD/USD weekly chart Source: TradingView

Towards the end of last week, persistent downward pressure on AUD/USD pushed it through the 0.6650 - 0.6625 support region, including the 200-day moving average at 0.6627.

This move paves the way for a sell-off reaching the next downside support at 0.6500. A potential 'red sweep' in next week’s US election could hasten a decline towards multi-week trend channel support at approximately 0.6380 - 0.6350.

The first sign of selling pressure easing would be a daily close above resistance around 0.6680 - 0.6720.

AUD/USD daily chart

AUD/USD daily chart Source: TradingView
AUD/USD daily chart Source: TradingView
  • Source: TradingView. The figures stated are as of 28 October 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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