After depreciating by 4.8% to 0.6582 in October, AUD/USD found a floor around 0.6560 over the past week. To push higher, AUD needs the USD to keep weakening on waning expectations of a Trump victory in today’s US elections and for the Reserve Bank of Australia to delay interest rate cuts to 2025 amid more positive developments with China.
The RBA meets today and is widely anticipated to keep the cash rate target at 4.35%, where it has stayed since November. CPI inflation fell to 2.8% YoY in 3Q24, returning to the official target for the first time since 1Q21. However, RBA Governor Michele Bullock warned that the latest decline in inflation would be temporary. Trimmed mean inflation, which stripped away the government’s energy subsidies, remained above target at 3.5%, with service inflation increasing a third quarter to 4.6%. The labour market surprised by adding 64.1k jobs in September, significantly more than the 25k expected and up from the average of 46.5k in the previous three months. Despite a modestly higher unemployment rate of 4.1%, wage growth held above 4% YoY.
That said, the RBA may tone down its hawkish narrative. Last month, the Reserve Bank of New Zealand lowered rates a second time by 25 bps to 4.75% while the Bank of Canada joined the Fed in cutting rates by 50 bps to 3.75%. The Albanese government has declared victory on inflation with a soft landing in the Australian economy. The cost-of-living crisis is a primary concern of voters ahead of the general elections, which must be held by May 2025.
Meanwhile, Treasurer Jim Chalmers welcomed China’s latest stimulus measures to support its economy. China is Australia’s top export market and a significant investor in China. On the sidelines of the ASEAN Summit in Laos in October, Premier Li Qiang told Prime Minister Anthony Albanese that China would end the four-year ban on Australian lobster imports. Earlier in March, China scrapped the tariffs on Australian wine, a step towards thawing the tensions between the two countries.
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