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Australian Dollar surged broadly today following RBA's decision to leave interest rates unchanged at 4.35%, as widely expected. What caught the market's attention was RBA's continued focus on inflation risks, making it clear that the central bank is not considering a rate cut anytime soon. During the post-meeting press conference, Governor Michele Bullock downplayed the significance of tomorrow's monthly CPI data, describing them as volatile and less reflective of the underlying inflation trend. Nevertheless, she clarified that the board did not explicitly consider a rate hike at this meeting, signaling a steady approach for now

The broader market mood was lifted by China's announcement of an unexpectedly large stimulus package. The package includes a forthcoming 50 bps reduction in the reserve requirement ratio for banks, along with a cut in the seven-day reverse repurchase rate from 1.7% to 1.5%. Furthermore, PBoC indicated an intention to cut loan prime rates by 20 to 25 basis points, although the timeline for these moves remains unclear, and the details remain sparse. Additional measures were announced, such as reduced down payments for second homes, aimed at stimulating the property market. This is seen as China's most significant stimulus move since the pandemic's onset, but skepticism remains over whether the new measures will be sufficient to fully revitalize the struggling economy.

Overall in the currency markets, Australian Dollar continues to lead the pack, buoyed by both RBA's stance and positive risk sentiment from China's stimulus actions. New Zealand Dollar and Canadian Dollar also posted gains, reflecting broader risk-on sentiment. Meanwhile, Euro has fallen to the bottom of the performance chart after disappointing PMI data fueled speculation of a ECB rate cut as early as October. Japanese Yen and Dollar are also struggling, weighed down by a lack of safe-haven demand. Sterling and Swiss Franc sit in the middle of the currency performance spectrum.

Technically, USD/CNH is now eyeing an important fibonacci level as down trend from 7.3745 (2023 high) extended. Some support could be seen from 100% projection of 7.3679 to 7.0870 from 7.3111 at 7.0302 to bring rebound. But firm break of 7.1364 resistance is needed to confirm short term bottoming. Otherwise, rise will stay on the downside. Decisive break of 7.0302 could prompt downside acceleration to 161.8% projection at 6.8566, even if fall from 7.3679 is just the third leg of the long term pattern from 7.3745.

In Asia, at the time of writing, Nikkei is up 0.83%. Hong Kong HSI is up 3.58%. China Shanghai SSE is up 3.55%. Singapore Strait Times is up 0.31%. Japan 10-year JGB yield is down -0.0421 at 0.822. Overnight, DOW rose 0.15%. S&P 500 rose 0.28%. NASDAQ rose 0.14%. 10-year yeild rose 0.011 to 3.739.

RBA holds rates at 4.35%, remains vigilant on inflation risks

RBA kept the cash rate target unchanged at 4.35% today, as widely anticipated by markets. The central bank stated that data since the August Statement on Monetary Policy have "reinforced the need to remain vigilant to upside risks to inflation." Maintaining its stance of "not ruling anything in or out," RBA emphasized its determination to return inflation to target levels and affirmed it will "do what is necessary."

Regarding the inflation outlook, RBA noted that headline inflation is expected to "fall further temporarily" due to federal and state cost-of-living relief measures. However, it does not foresee inflation returning sustainably to the 2–3% target range until 2026. This suggests that while short-term relief is expected, underlying inflationary pressures remain a concern over the medium term.

Japan's PMI manufacturing dips to 49.6, services rises to 53.9

Japan's PMI manufacturing index ticked down from 49.8 to 49.6, marking its third consecutive month in negative territory. On the other hand, services sector offered some relief as its PMI edged higher, rising from 53.7 to 53.9. Composite PMI slipped from 52.9 to 52.5, indicating a slight softening in growth momentum.

Usamah Bhatti, Economist at S&P Global Market Intelligence, noted that Japan's private sector expansion carried on through Q3, though at a slower pace. The expansion remained services-led, with the sector showing its strongest growth in five months, while manufacturing output fell back into contraction for the second time in three months.

Bhatti also highlighted that input cost inflation has eased to a six-month low, with both manufacturing and services firms reporting softer cost pressures. However, service providers are increasingly passing higher costs onto customers, as output price inflation ticked up slightly in September. Confidence in the future remains positive, but the overall sentiment has weakened to its lowest level since April 2022.

Fed's Goolsbee signals multiple rate cuts ahead as focus shifts to employment

Chicago Fed President Austan Goolsbee suggested at an event overnight that Fed will likely implement "many more rate cuts over the next year" as it shifts its focus from inflation to employment concerns.

Goolsbee further noted that a proactive approach is necessary to avoid potential disruptions in the labor market. "It's just not realistic to wait until problems show up," he said, highlighting the need for Fed to avoid being "behind the curve" in managing economic risks.

While the timing of the initial rate cut may be less critical, Goolsbee stressed the importance of a "longer-arc view" to ensure favorable conditions for both inflation and employment. He pointed out that "rates need to come down significantly going forward" to maintain economic stability.

Looking ahead

Germany Ifo business climate is the main feature in European session. Later in the day, US will release house price index and consumer confidence.

EUR/AUD Daily Outlook

Daily Pivots: (S1) 1.6182; (P) 1.6302; (R1) 1.6370; More...

EUR/AUD's fall from 1.7180 resumed by breaking through 1.6256 support. Intraday bias stays on the downside for 61.8% projection of 1.7180 to 1.6256 from 1.6629 at 1.6058, which is close to 1.5996 key support level. On the upside, above 1.6315 minor resistance will turn intraday bias neutral first. But outlook will remains bearish as long as 1.6629 resistance holds.

In the bigger picture, outlook is mixed up by the deeper than expected fall from 1.7180. Yet as long as 1.5996 support holds, up trend from 1.4281 (2022 low) is still in favor to resume at a later stage. Firm break of 1.7180 will pave the way to 61.8% projection of 1.4281 to 1.7062 from 1.5996 at 1.7715.

Economic Indicators Update

RBA kept the cash rate target unchanged at 4.35% today, as widely anticipated by markets. The central bank stated that data since the August Statement on Monetary Policy have "reinforced the need to remain vigilant to upside risks to inflation." Maintaining its stance of "not ruling anything in or out," RBA emphasized its determination to return inflation to target levels and affirmed it will "do what is necessary."

Regarding the inflation outlook, RBA noted that headline inflation is expected to "fall further temporarily" due to federal and state cost-of-living relief measures. However, it does not foresee inflation returning sustainably to the 2–3% target range until 2026. This suggests that while short-term relief is expected, underlying inflationary pressures remain a concern over the medium term.

Full RBA statement here.

At its meeting today, the Board decided to leave the cash rate target unchanged at 4.35 per cent and the interest rate paid on Exchange Settlement balances unchanged at 4.25 per cent.

Inflation remains above target and is proving persistent.

Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance. But inflation is still some way above the midpoint of the 2–3 per cent target range. In underlying terms, as represented by the trimmed mean, inflation was 3.9 per cent over the year to the June quarter, broadly as forecast in the May Statement on Monetary Policy (SMP). Headline inflation declined in July, as measured by the monthly CPI indicator. Headline inflation is expected to fall further temporarily, as a result of federal and state cost of living relief. However, our current forecasts do not see inflation returning sustainably to target until 2026. In year-ended terms, underlying inflation has been above the midpoint of the target for 11 consecutive quarters and has fallen very little over the past year.

The outlook remains highly uncertain.

The central forecasts published in August were for underlying inflation to return to the target range of 2–3 per cent late in 2025 and approach the midpoint in 2026. This reflected a judgement that the economy’s capacity to meet demand was somewhat weaker than previously thought, evidenced by the persistence of inflation and ongoing strength in the labour market.

Since then, GDP data for the June quarter have confirmed that growth has been weak. Earlier declines in real disposable incomes and the ongoing effect of restrictive financial conditions continue to weigh on consumption, particularly discretionary consumption. However, growth in aggregate consumer demand, which includes spending by temporary residents such as students and tourists, remained more resilient.

Wage pressures have eased somewhat but labour productivity is still only at 2016 levels, despite the pickup over the past year.

Broader indicators suggest that labour market conditions remain tight, despite some signs of gradual easing. Over the three months to August, employment grew on average by 0.3 per cent per month. The unemployment rate remained at 4.2 per cent in August, up from the trough of 3.5 per cent in mid-2023. But the participation rate remains at record highs, vacancies remain elevated and average hours worked have stabilised.

Taken together, the latest data do not change the Board’s assessment at the August meeting that policy is currently restrictive and working broadly as anticipated. But there are uncertainties. The central projection is for household consumption growth to pick up in the second half of the year as the headwinds to income growth recede – but there is a risk that this pickup is slower than expected, resulting in continued subdued output growth and a sharper deterioration in the labour market. More broadly, there are uncertainties regarding the lags in the effects of monetary policy and how firms’ pricing decisions and wages will respond to the slower growth in the economy at a time of excess demand, and while conditions in the labour market remain tight.

There also remains a high level of uncertainty about the outlook abroad. Some central banks have eased policy, although they note that they are removing only some restrictiveness and remain alert to risks on both sides, namely weaker labour markets and stronger inflation. The outlook for the Chinese economy has softened and this has been reflected in commodity prices. Geopolitical uncertainties remain pronounced.

Returning inflation to target is the priority.

Sustainably returning inflation to target within a reasonable timeframe remains the Board’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment. To date, longer term inflation expectations have been consistent with the inflation target and it is important that this remain the case.

While headline inflation will decline for a time, underlying inflation is more indicative of inflation momentum, and it remains too high. The most recent projections in the August SMP show that it will be some time yet before inflation is sustainably in the target range. Data since then have reinforced the need to remain vigilant to upside risks to inflation and the Board is not ruling anything in or out. Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.

The Board will continue to rely upon the data and the evolving assessment of risks to guide its decisions. In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.

Key Highlights

• Bitcoin price gained over 15% in the past few days.
• BTC is trading above a connecting bullish trend line with support at $61,500 on the 4-hour chart.
• Oil prices corrected losses and climbed above the $71.20 resistance.
• Gold surged to a new all-time high above $2,630.

Bitcoin Price Technical Analysis

Bitcoin price started a decent upward move above the $60,000 pivot zone. BTC/USD climbed above the $62,500 resistance to move into a positive zone.

Looking at the 4-hour chart, the price settled above the 200 simple moving average (green, 4 hours) and the 100 simple moving average (red, 4 hours). It even spiked above $64,000 before it faced resistance.

The price is now consolidating gains below $64,200. Immediate support is near the $62,500 level. The next key support sits at $62,000. There is also a connecting bullish trend line with support at $61,500 on the same chart.

The trend line is close to the 50% Fib retracement level of the upward move from the $59,330 swing low to the $64,200 swing high. A downside break below $61,500 might send Bitcoin toward the $60,000 support. Any more losses might send the price toward the $58,500 support zone.

On the upside, the price could face resistance near the $64,200 level. The next key resistance is at $65,000. A successful close above $65,000 might start another steady increase. In the stated case, the price may perhaps rise toward the $66,500 level.

Looking at gold, the price extended gains above the $2,600 level and traded to a new all-time high above the $2,630 level.

Today’s Economic Releases

• US House Price Index for July 2024 (MoM) - Forecast +0.2%, versus +0.8% previous.
• S&P/Case-Shiller Home Price Indices for July 2024 (YoY) - Forecast +5.8%, versus +6.5% previous.

Japan’s PMI manufacturing index ticked down from 49.8 to 49.6, marking its third consecutive month in negative territory. On the other hand, services sector offered some relief as its PMI edged higher, rising from 53.7 to 53.9. Composite PMI slipped from 52.9 to 52.5, indicating a slight softening in growth momentum.

Usamah Bhatti, Economist at S&P Global Market Intelligence, noted that Japan’s private sector expansion carried on through Q3, though at a slower pace. The expansion remained services-led, with the sector showing its strongest growth in five months, while manufacturing output fell back into contraction for the second time in three months.

Bhatti also highlighted that input cost inflation has eased to a six-month low, with both manufacturing and services firms reporting softer cost pressures. However, service providers are increasingly passing higher costs onto customers, as output price inflation ticked up slightly in September. Confidence in the future remains positive, but the overall sentiment has weakened to its lowest level since April 2022.

Full Japan PMI release here.

Chicago Fed President Austan Goolsbee suggested at an event overnight that Fed will likely implement "many more rate cuts over the next year" as it shifts its focus from inflation to employment concerns.

Goolsbee further noted that a proactive approach is necessary to avoid potential disruptions in the labor market. "It’s just not realistic to wait until problems show up," he said, highlighting the need for Fed to avoid being "behind the curve" in managing economic risks.

While the timing of the initial rate cut may be less critical, Goolsbee stressed the importance of a "longer-arc view" to ensure favorable conditions for both inflation and employment. He pointed out that "rates need to come down significantly going forward" to maintain economic stability.

• Natural Gas rising inside impulse waves 3 and (3)
• Likely to reach resistance level 3.150

Natural Gas continues to rise inside the impulse waves 3 and (3), which recently broke the resistance area located between the key resistance level 2.600 and the 50% Fibonacci correction of the downward impulse from June.

The breakout of this resistance area accelerated the active impulse waves 3 and (3) – which belong to the primary impulse sequence 3 from the start of August.

Given the clear daily uptrend, Natural Gas can be expected to rise further to the next resistance level 3.150, former monthly high from May and June.

• EURGBP broke the support area
• Likely to fall to support level 0.8300

EURGBP currency pair recently broke the support area located between the key support level 0.8400 (which has been reversing the price from June) and the support trendline of the wide daily down channel from April.

The breakout of this support area accelerated the active impulse waves iii and 3.

Given the clear daily downtrend and the strongly bearish euro sentiment seen today, EURGBP currency pair can be expected to fall further to the next support level 0.8300 – target price for the completion of the active impulse wave iii.

Gold prices soared to a new all-time high, with the troy ounce surpassing 2614 USD. This surge is primarily driven by expectations of additional interest rate cuts and ongoing geopolitical tensions, which enhance gold's appeal as a safe-haven asset.

Following the US Federal Reserve's decision last week to reduce its interest rate by 50 basis points – the first such cut in four years – the market expects an equivalent reduction by the year's end. This week, attention is focused on upcoming US macroeconomic releases, including the Core PCE report and personal income and expenditures data. These indicators will provide insights into the potential direction of future Fed rate adjustments.

Gold becomes increasingly attractive as an investment during periods of lower lending costs, which typically lead to reduced yields on government bonds and a lower Dollar Index (DXY). Unlike other assets, gold does not generate coupon income, making it more appealing when other yields decline.

Additionally, the escalation of hostilities between Israel and Gaza has further boosted demand for gold. In times of heightened global uncertainty and conflict, gold traditionally performs well as a defensive investment.

Despite some strengthening of the US dollar, this has not significantly impacted the upward trajectory of gold prices.

Technical analysis of gold (XAU/USD)

Gold has broken through the resistance at 2611.00 USD and is now targeting 2672.00 USD. Upon reaching this level, a corrective movement back to 2611.00 USD may occur, followed by another growth phase targeting 2750.00 USD. The MACD indicator supports this bullish outlook, with the signal line well above zero and ascending sharply.

The H1 chart shows that gold has reached 2611.00 USD and is now consolidating around this level. The consolidation range is defined between 2603.00 USD and 2625.25 USD. A breakout above 2625.25 USD would likely lead to a continuation of the upward momentum towards 2672.00 USD, confirming the ongoing bullish trend. This scenario is corroborated by the Stochastic oscillator, with its signal line progressing towards 80, indicating sustained upward momentum.