AUD/USD: Key support test as RBA looms – Societe Generale

Societe Generale's Kenneth Broux notes that AUD/USD is currently trading near its 200-day moving average at 0.7024, which is a historically significant support level. The currency pair is positioned at the lower edge of a descending channel, with support at 0.6975 and resistance at 0.7090. Given the anticipation of a Reserve Bank of Australia (RBA) rate hike and the typical weaker October performance for the Australian Dollar, a deeper pullback is possible.

After reaching a lower peak of 0.7235 in May, AUD/USD has now fallen to the lower boundary of the descending channel, at 0.7000/0.6975. If the pair fails to maintain its position above 0.6975, the pullback could extend further towards 0.6920, nearing the June lows of 0.6860. At this juncture, AUD/USD is at a crucial inflection point, holding onto the 200-day moving average at 0.7024.

Historically, the currency has successfully defended this support line, but with the bearish trend emerging in October, a more substantial retracement might be imminent. As the week begins, AUD/USD is trading around its lowest point since August 4, amid a bullish US Dollar. The US yields are hovering near multi-year peaks, driven by inflation concerns stemming from higher oil prices and increasing expectations of an October Fed rate hike.

Concurrently, geopolitical tensions, such as the US-Iran standoff, continue to bolster the safety of the US Dollar, further pressuring the AUD/USD pair ahead of the RBA policy announcement on Tuesday. Meanwhile, USD/JPY experiences dip-buyers, marking a reversal from its previous slide, partly due to speculation that authorities will intervene to support the Japanese Yen.

However, the Bank of Japan's dovish minutes limit this potential Yen support. Additionally, the US Dollar gains strength as the US-Iran standoff propels crude oil prices, heightening inflation fears and reinforcing expectations of an October Fed rate increase, all contributing to the pair's resurgence toward 158.00. Gold faces a steep decline at the start of a new week, aiming to hit $4,100 for the first time in eight weeks.

Rising October Fed rate-hike expectations, coupled with oil-fueled inflation risks, maintain elevated US bond yields, bolstering the US Dollar, particularly after Donald Trump dismissed Iran's cease-fire proposal. These factors significantly weigh on the precious metal. In other market news, Zcash is hovering below $1,550, continuing its losses following a 4% drop the previous day, despite strong institutional interest with inflows of over $35 million last week.

However, retail speculation has waned, with ZEC futures open interest down around 10% in 24 hours. Both the Federal Reserve and the Bank of Japan have recently implemented similar interest rate hikes by 25 basis points, both grappling with inflation concerns and signaling that future decisions will depend on forthcoming economic data.