• The Australian Dollar receives support against the US Dollar on central banks’ policy divergence.
• The PBoC decided to keep its one-year and five-year Loan Prime Rates unchanged at 3.35% and 3.85%, respectively.
• The US Dollar struggles amid the rising likelihood of further rate cuts by the Federal Reserve in 2024.

The Australian Dollar (AUD) recovers its daily losses and extends its winning streak against the US Dollar (USD) following the interest rate decision by the People’s Bank of China (PBoC) on Friday. The PBoC opted to keep its one-year and five-year Loan Prime Rates (LPRs) unchanged at 3.35% and 3.85%, respectively. As close trade partners, any developments in the Chinese economy can significantly impact Australian markets.

The AUD/USD pair received support following Thursday’s labor market report and the Federal Reserve’s (Fed) 50 basis points (bps) interest rate cut on Wednesday. The divergence in monetary policy between the Reserve Bank of Australia’s (RBA) commitment to maintaining higher rates for longer and the Fed’s easing cycle is expected to impact the pair’s movement in the near term.

The US Dollar faces challenges amid growing expectations for further rate cuts by the US Federal Reserve by the end of 2024. The latest dot plot projections suggest a gradual easing cycle, with the median rate for 2024 revised down to 4.375% from the 5.125% forecast in June.

Fed Chair Jerome Powell commented on the aggressive rate cut, saying, “This decision reflects our growing confidence that, with the appropriate adjustments to our policy, we can maintain a strong labor market, support moderate economic growth, and bring inflation down to a sustainable 2% level.”