• AUD/USD is on the verge of a downside continuation for the open. Trendline support is under pressure. 
  • The RBA and Fed are the main highlights for the week ahead along with US jobs. 
  • For the open, Chinese data will be taken into consideration. 

AUD/USD ended the day around 0.3% lower on Friday following a sharp rally in the US dollar. The Aussie closed at 0.7518 and had ranged between 0.7500 and 0.75550.  Volatility in the foreign exchange and interest rate markets increased in recent trading days as markets position for central bank actions and economic data. Friday was especially volatile due to the squaring up of month-end portfolios on the day of the week when markets tend to be the least liquid.

US Treasury yields climbed after the government’s index of core personal consumption expenditures which supported the greenback. The PCE is the Fed’s preferred inflation measure and climbed at a 4.4% annual rate in September, continuing a run of inflation at levels not seen in 30 years ahead of the Federal Reserve meeting this week. This measure showed prices continuing to rise faster than their 2% target. The data reinforces the idea that the Federal Reserve is going to raise rates around mid-2022.

China data in focus

Meanwhile, Aussie traders will be taking note of the data from China that fell over the weekend. It has shown that growth has lost momentum, with construction and real estate under pressure. Supply-side pressures are evidently weighing on activity. Some restrictions are easing such as in coal, however, which will be expected to support electricity production and usage while there is a little softening in credit availability. 

The data arrived as follows: Manufacturing PMI 49.2 vs the expected 49.7, prior 49.6. This was the second month of contraction in a row. Meanwhile, Non-manufacturing PMI fell to 52.4 vs the expected 52.9, prior 53.2 leaving the Composite down at 50.8 vs the prior 51.7. 

October’s manufacturing and non-manufacturing PMI demonstrated the effects of intensive policy actions on the economy. Still, to come, Caixin PMIs are up next for today’s sessions being the private survey. Manufacturing PMI, expected 50, prior 50.  In other data for Asia, we will see Australian PMI, Melbourne Institute inflation and ANZ job ads, and the Japanese PMIs.  

Central banks and US jobs in focus

The credibility of established Fed and Reserve Bank of Australia guidance is under enormous pressure and the next meetings are going to be an opportune time to update it. The RBA tomorrow is expected to change its guidance following stronger core inflation by possibly abandoning its 3-year yield target. ”We expect the RBA to announce an end to its Yield Target Framework next week,” analysts at TD Securities said. 

”This follows the RBA’s decision to not defend the yield on the Apr’24s even after trading significantly above the 10bps target. As for QE we expect the Bank to leave its guidance unchanged, continuing to purchase bonds at a weekly A$4bn rate through to Feb.”

As for the Fed, tapering will be announced. ”We don’t expect any definitive new “liftoff” signal, and we expect “elevated” inflation will continue to be seen as “largely reflecting transitory factors,” but the chair will likely emphasize how tapering will lead to flexibility in responding if the economy evolves in a way that deviates significantly from expectations,” the analysts at TDS explained.

For US payrolls, the analysts argued that they likely reaccelerated in October, consistent with a fading of Delta’s drag as well as a smaller education-related drop in government jobs than in September. 

AUD/USD technical analysis

The price is on the verge of a critical test of the dynamic support following a touch of the 61.8% Fibonacci retracement level and a rejection at the 20-EMA. If the support breaks, the downside will be in play for the open this week.