The stronger US dollar has pushed the Australian dollar further down. Higher US Treasury yields have strengthened the greenback, while the soft policy decisions by the Reserve Bank of Australia (RBA) have added further pressure on the AUD/USD pair.
Reserve Bank of Australia
The Australian central bank has kept the current interest rate unchanged at 4.10% in its policy meeting on Tuesday. This may have added more pressure on the Aussie pair. However, there is a possibility that interest rates may rise higher to a peak of 4.35% by the end of 2023 due to the fact that inflationary pressures remain elevated.
The Australian Bureau of Statistics reported that the number of permits for new construction projects has increased in August. Australia’s Building Permits (MoM) rose to 7% compared to the 2.5% expected in August, but the ANZ Job Advertisements data showed a 0.1% decline in September from the previous increase of 1.9%.
In terms of data out of China, we note that China’s Manufacturing PMI for August grew to 50.2 from the previous 49.7 figures, surpassing expectations.
US Dollar Index (DXY) and US data
The US Dollar Index (DXY) has risen after the 10-year U.S. Treasury yield increased above its highest level since 2007. The DXY’s upward path was boosted by the welcome news on Friday that bills were successfully passed in the US to prevent a government shutdown.
Congress passed a stopgap funding measure and President Joe Biden signed the bill late Saturday night. House Speaker Kevin McCarthy announced the stopgap proposal Saturday morning, and the bill passed the House with an overwhelmingly bipartisan vote, and it was sent to the Senate. The final vote was 88 to 9. The bill will keep the government open until the 17th of November and includes natural disaster support but not additional funding for Ukraine or border security.
The USD rose to an 11-month high following the release of mixed data on Monday. The US ISM Manufacturing PMI and the Manufacturing Employment Index both improved in September, but Manufacturing Prices Paid fell in September.
US ISM Manufacturing PMI increased to 49.0 in September from 47.6 in the previous reading, but Manufacturing Prices Paid fell sharply to 43.8 from 48.4. The Employment Index rose to 51.2 from 48.4.
Federal Reserve (Fed) Governor Michelle Bowman said on Monday that it is possible to raise the policy rate further and hold it at restrictive levels for a continued period.
Fed Vice Chair for Supervision Michael Barr stroke a more cautious tone and warned that the Federal Reserve should not only be careful of how much interest rates will rise, but also of how long they will remain at an appropriately restrictive level. Despite this, Barr expects the Fed to manage inflation without causing significant damage to the labour market.
Traders will closely watch the release of the US employment data, with the ADP report on Wednesday and the Nonfarm Payrolls on Friday.