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02/09/24
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Australian Dollar Weakens Despite Positive Economic Signals
The Australian Dollar (AUD) has seen a decline against the US Dollar (USD) despite the release of positive economic indicators on Monday. Notably, Australia’s Building Permits climbed by 10.4% month-over-month in July, rebounding after a 6.5% drop in June and achieving its strongest growth since May 2023. On an annual basis, the increase stands at 14.3%, contrasting sharply with the prior year’s decline of 3.7%. Furthermore, China’s Caixin Manufacturing PMI rose to 50.4 in August from July’s 49.8, which is important given Australia’s significant trading ties with China.
The USD faces downward pressure due to increasing speculation around a possible 25 basis point rate cut by the Federal Reserve (Fed) later this month. This development is compounded by data released on Friday that showed the US Personal Consumption Expenditures (PCE) price index held steady at a year-over-year increase of 2.5% in July but slightly below the anticipated 2.6%. Meanwhile, core PCE, which excludes food and energy prices, rose by 2.6%, matching the previous rate but falling short of expectations.
US economic indicators showed robust performance, with the GDP growing at an annualized rate of 3.0% in the second quarter, bettering previous and expected growth of 2.8%. Jobless claims also decreased, suggesting some positive movement in the labor market, although traders are likely awaiting further details from upcoming employment reports, including the Nonfarm Payrolls for August.
In Australia, private capital expenditure unexpectedly fell by 2.2% in the second quarter, marking the first contraction since Q3 2023 and contrasting sharply with market expectations for growth. Additionally, the Consumer Price Index saw a slight decline year-on-year but remains above consensus estimates, indicating ongoing inflation pressures. The current AUD/USD exchange rate hovers around 0.6760, positioned below an uptrend line which may signal a weakening bullish outlook. Immediate resistance is seen at 0.6798, while support is at 0.6732. A breach of these key levels could significantly alter the trading landscape for the AUD.
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