This week has been nothing short of a rollercoaster in the financial markets, with major economic events driving significant price action. Here’s a recap of what happened and what to watch next.
Monday’s PMIs: Mixed Signals from Major Economies
We kicked off the week with the release of the S&P Global Manufacturing and Services PMIs for the Eurozone, UK, and the US. The data was a mixed bag, reflecting some weakness in European economies while the US showed resilience in its services sector. This led to subdued movements in the Euro and Pound, while the US Dollar found support on stronger-than-expected numbers, keeping investors focused on the next big releases.
Tuesday’s RBA Surprise: Aussie Dollar on the Rise
The Reserve Bank of Australia (RBA) kept its interest rates steady at 4.35% as widely expected, but the hawkish tone from RBA Governor Michelle Bullock was the real surprise. She firmly stated that the bank is not considering rate cuts, pushing the Australian Dollar sharply higher against the US Dollar. The AUD/USD pair regained momentum, climbing near the 0.6900 mark after dipping to 0.6800 earlier in the week. This movement came on the back of strong employment data, with 47.5K jobs added in August, outpacing market expectations.
Despite the rate hold, the Aussie surged as investors reassessed their rate expectations, putting additional pressure on the US Dollar ahead of the highly anticipated US inflation data.
Wednesday’s Inflation Data: A Key Moment for the RBA
Australia’s Consumer Price Index (CPI) report on Wednesday showed inflation cooling to 2.7%, down from 3.3% in July. This was welcome news for policymakers as inflation now lies within the RBA’s target range of 2-3%. The data reinforced the RBA’s decision to hold rates steady but didn’t rule out future tightening should inflationary pressures resurface. The AUD/USD pair continued to hover around the 0.6900 level, with bullish indicators suggesting a potential retest of higher resistance areas.
Thursday’s Swiss National Bank (SNB) and US Data: Central Banks in the Spotlight
Thursday was a big day for central bank action, particularly in Switzerland. The SNB delivered a dovish surprise, cutting its policy rate by 25bps. This move weakened the Swiss franc, which had been rallying for four months, offering relief to Switzerland’s export-heavy industries. The CHF dropped against both the Euro and the US Dollar following the announcement, as markets adjusted to the SNB’s new dovish stance.
Across the Atlantic, the final Q2 US GDP print came in as expected, while jobless claims and durable goods orders pointed to a resilient US economy. This set the stage for today’s big event—the US PCE inflation report.
Friday’s PCE Data: What to Expect Tonight
The week’s grand finale is set for tonight with the release of the US Personal Consumption Expenditure (PCE) Price Index, the Federal Reserve’s preferred measure of inflation. Economists are forecasting a slight dip in YoY PCE inflation to 2.3%, down from 2.5% in July. However, core PCE inflation is expected to tick up to 2.7% from 2.6%.
This data is crucial for determining the Fed’s next steps. A softer-than-expected reading could reinforce expectations for a 50bps rate cut in November, while a stronger figure could dampen those hopes, potentially putting pressure on risk assets and giving a boost to the US Dollar.
AUD/USD Technical Outlook: Aussie Maintains Momentum
The AUD/USD pair has been riding high this week, thanks to the RBA’s hawkish tone and strong employment data. Technical indicators, including the RSI and MACD, suggest bullish momentum is building, and the pair could look to retest the 0.6900 resistance level. If the Aussie pulls back, it might revisit the 0.6800 support area, with further downside risks pointing to 0.6750 and 0.6730.
With tonight’s US PCE data looming, the AUD/USD pair’s next move will hinge on how the market reacts to the inflation figures and any shifts in Fed expectations.
In conclusion, the past week has delivered key insights into the global economic landscape. While inflation seems to be cooling in Australia and Switzerland, the focus now shifts to the US, where the PCE data could reshape expectations for monetary policy heading into the final quarter of 2024. Stay tuned for what could be another volatile session as markets digest the latest numbers!
