The Australian dollar extended its gains, rising stronger than ever as the US dollar lost strength against the euro and the pound ahead of the speech by Fed Chairman Jerome Powell, with the markets awaiting a roadmap policy signal

The Australian dollar has strengthened through divergent policy outlooks between the RBA and the Fed. Indeed, in September, the Caixin Manufacturing PMI

reported a contraction at 49.3, below 50.4 in August. The focus now shifts toward Fed Chair Jerome Powell’s upcoming speech on Monday.

The Australian dollar moved higher for the third session on Monday, which has been relatively strong, competing with other mixed PMI data for China,

its biggest trading partner. The US dollar was weakened mainly by heightened expectations for further Federal Reserve policy easing for November. Hence, this is able to gradually support the Australia dollar against the US dollar.

The Caixin Manufacturing PMI in China shrank from 50.4 in August to 49.3 in September, while China’s Caixin Services PMI saw a drop to 50.3, from 51.6 during August, indicating a slowdown in their service sector.

The US Dollar came under pressure after the release of August’s US Core PCE Price Index, which showed a 0.1% monthly increase, below the expected 0.2%. This aligns with the Federal Reserve’s view that inflation is easing, reinforcing the possibility of an aggressive rate-cutting cycle.

According to the CME FedWatch Tool, markets now assign a 42.9% probability to a 25-basis-point rate cut by the Fed in November, while the likelihood of a 50-basis-point increase has risen to 57.1%, up from 50.4% last week.

Market Movers: AUD Gains as RBA Shifts Towards Hawkish Stance-The Australian dollar gains as the RBA shifts to a more hawkish stance, encouraging market confidence

China’s NBS Manufacturing PMI increased to 49.8 during September, a statistic rising from 49.1 a month ago, and exceeding the market expectation of 49.5. However, softer data came from the Non-Manufacturing PMI, which fell to 50.0 from 50.3 in August, below expectations of 50.4.

The Australian dollar is benefiting from the hawkish stance of the Reserve Bank of Australia as it held cash rates constant at 4.35% for the seventh time and the desire for a more restrictive policy to check inflation.

President Albert Musalem of the St. Louis Federal Reserve advocates a “gradual” lowering of interest rates to commence after a half-point cut in September in light of the possible economic weakness.

During his visit to China, Australian Treasurer Jim Chalmers raised the effect of economic downturn in global growth, referring to China’s recent stimulus measures as good news.

According to the Bureau of Economic Analysis, the US GDP grew at an annualized rate of 3.0% during the second quarter with the GDP Price Index rising 2.5%.

China plans to inject more than CNY 1 trillion into its largest state banks to aid in shoring up shrinking margins, sagging profits, and an increasing amount of bad loans; marking the first major capital injection since the 2008 financial crisis.

The RBA’s Financial Stability Review noted that while Australia’s financial system remains resilient, there is concern over the unfolding strain in China’s financial sector and a wider group of Australian home borrowers facing repayment difficulties, with about 2% at serious risk of default.

While the November monetary policy may see the Commonwealth Bank of Australia expect the RBA to lower growth forecasts, which have acknowledged downside risks, this could push the RBA to consider rate cuts before the end of the year being supported by rising unemployment and inflation trends aligning with forecasts by CBA-since similarly, the implications of pressure would be higher on interest rates.