Forex Market: AUD/USD maintains gains as CPI inflation data adds to RBA policy easing prospects in support of economy

AUD/USD remained mostly steady in early European session on Wednesday, while being not far from last Friday’s one-week high of 0.7158, after an official report showed Australian consumer price inflation had come in slightly better than expectations.

Consumer prices went up 0.7% year-on-year during the third quarter, while matching a consensus of estimates, following a 0.3% drop in Q2. The data came as Australian economy reopens from the coronavirus-related lockdown. In quarterly terms, consumer price inflation was reported at 1.6% during the third quarter, which compares with market expectations of a 1.5% rate.

“The economy is recovering from the lows of the COVID-19 recession. The recovery will be long and uneven, but it is clearly underway,” CBA’s head of global economics Stephen Halmarick, said.

“Bottom-line is that Australia should continue to outperform most other major OECD economies in recovering.”

Still, the inflation figures were well below the Reserve Bank of Australia’s target range of 2%-3%, which supported prospects of a rate cut next month.

CBA’s Halmarick expects the official cash rate to be cut to 0.10% at the bank’s November 3rd policy meeting. The RBA is also expected to commit to purchasing AUD 100 billion in 5- to 10-year bonds.

Meanwhile, the bigger focus remains on US presidential election next week, with polls showing a lead for Joe Biden over Donald Trump. There has been a bit of skepticism among some market players, however, as the polls did not predict Trump’s victory in 2016.

According to analysts, the risk of a disputed election outcome due to legal battles between Republicans and Democrats over how votes should be counted may pressure the US Dollar.

Additionally, fading prospects of a coronavirus aid deal prior to the election have also dampened USD sentiment.

As of 8:44 GMT on Wednesday AUD/USD was inching down 0.03% to trade at 0.7126, after earlier touching an intraday high of 0.7157, or a level not seen since October 23rd (0.7158), also a one-week high. The major pair has dropped 0.51% so far in October, after retreating 2.91% in September, its first monthly loss since March.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled -2.5 basis points (-0.025%) as of 7:15 GMT on Wednesday, up from -3.1 basis points on October 27th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7129
R1 – 0.7146
R2 – 0.7163
R3 – 0.7180
R4 – 0.7196

S1 – 0.7112
S2 – 0.7095
S3 – 0.7078
S4 – 0.7060