Australian dollar slips on mixed data

The Australian dollar is considerably lower on Tuesday. In the North American session, AUD/USD is trading at 0.6869, down 0.63%. The Aussie has looked strong lately and on Monday hit a high of 0.6942, its highest level since February 2023.

Tuesday’s Australian data was a mixed bag. Retail sales continue to accelerate and hit 0.7% m/m in August, up from a revised 0.1% in July and beating the market estimate of 0.4%. This was the strongest level since January, as consumers took advantage of unusually warm weather and special sales events.

Australia’s manufacturing sector has struggled and there is no relief in sight. The September manufacturing PMI slowed to 46.7, down from 48.5 in August and in line with expectations. This was the eighth straight month of contraction and the weakest level since May 2020. Domestic and external demand both decreased, resulting in a sharp drop in new orders.

The Federal Reserve joined the rate-cutting club in September and with inflation largely contained, there are expectations that Powell & Co. will be aggressive in lowering rates. However, Powell poured cold water on these expectations on Monday, saying that the economy was performing well and there was no rush to cut rates quickly. Powell added that if the economy performs as expected, there would be two more quarter-point cuts by year’s end.

Market rate pricing ahead of the September meeting showed sharp swings and the same is true for the November meeting. Currently, the markets have priced in a 50-bps cut at 38%, down sharply from 58% just one week ago, according to the FedWatch tool.

• AUD/USD is testing support at 0.6879. Below, there is support at 0.6821
• There is resistance at 0.6960 and 0.7018