- The Australian Dollar has risen due to the hawkish sentiment surrounding the RBA’s policy decision.
- The Australian Central Bank is anticipated to keep the cash rate unchanged at 4.35% during its May meeting later today.
- The US Dollar remains subdued due to a prevalent risk appetite, fueled by expectations regarding rate cuts by the Fed.
The Australian Dollar (AUD) continued its winning streak for the fifth consecutive session on Tuesday, driven by a hawkish sentiment surrounding the Reserve Bank of Australia (RBA). This positive outlook reinforces the strength of the Aussie Dollar, offering support to the AUD/USD pair.
The Australian central bank is widely expected to maintain the cash rate at 4.35% in its May meeting later in the day. However, markets are speculating that it may adopt a more hawkish stance, fueled by last week’s inflation data, which exceeded expectations, according to The Australian Financial Review.
The US Dollar Index (DXY), which gauges the performance of the US Dollar (USD) against six major currencies, continues to face pressure following the release of softer US labor data on Friday. This development has reignited hopes for potential interest rate cuts by the Federal Reserve (Fed) in 2024.
Daily Digest Market Movers: Australian Dollar extends gains due to improved risk appetite
- According to a report by Bloomberg, Richmond Federal Reserve (Fed) President Thomas Barkin said on Monday that elevated interest rates will further dampen US economic growth and help alleviate inflation pressures, bringing them closer to the central bank’s 2% target. Barkin also noted that the solid labor market allows the Fed the opportunity to ensure that inflation is consistently trending lower before considering reductions in borrowing costs. However, he cautioned that continued inflation in the housing and services sectors poses a risk of keeping price increases elevated.
- TD Securities Inflation (YoY) released by The University of Melbourne, came down to 3.7% in April, from the previous month’s 3.8%. In the meantime, the monthly rate remained at 0.1%.
- China’s Caixin Services Purchasing Managers’ Index (PMI) for April dipped slightly to 52.5 from 52.7 in March, which is in line with expectations. Nonetheless, it signifies the 16th consecutive month of expansion in services activity. This positive trend has the potential to uplift Australia’s market, given its significant role as one of the largest exporters to China.
- On Friday, Nonfarm Payrolls showed that the US economy added 175,000 jobs in April, lower than the estimated 243,000 and signaling a significant slowdown from March’s addition of 315,000 jobs.
- The Judo Bank Australia Composite Purchasing Managers Index (PMI) declined in April, indicating a slightly slower growth in Australian private sector output. The growth in business activity was mainly confined to the service sector while manufacturing output continued to decrease.
- According to forecasts by analysts at Commonwealth Bank and Westpac, the RBA’s interest rate is expected to peak at its highest point at 4.35% in November 2023, then decrease to 3.10% by December 2025.
- Australia’s central bank is expected to maintain its key policy rate at 4.35% for a fourth consecutive meeting on Tuesday, and likely until the end of September, as per a Reuters poll of economists. These economists predict only one interest rate cut this year.
Technical Analysis: Australian Dollar could test the triangle’s upper boundary near 0.6650
The Australian Dollar trades around 0.6630 on Tuesday. The pair consolidates within a symmetrical triangle pattern, with the 14-day Relative Strength Index (RSI) above the 50-level, suggesting a bullish bias.
The AUD/USD pair could potentially retest the upper boundary near the major support level of 0.6650. A breakthrough above this level might prompt the pair to revisit March’s high of 0.6667, followed by the psychological level of 0.6700.
On the downside, the AUD/USD pair may encounter immediate support at the psychological level of 0.6600, followed by the nine-day Exponential Moving Average (EMA) at 0.6569. If the pair breaks below the EMA, it could face further pressure, testing the throwback support at the 0.6480 level. Subsequently, the lower boundary of the symmetrical triangle around the level of 0.6465 may serve as another support level.
AUD/USD: Daily Chart
Australian Dollar price today
The table below shows the percentage change of the Australian Dollar (AUD) against listed major currencies today. The Australian Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.02% | 0.03% | 0.05% | 0.03% | 0.14% | 0.02% | 0.06% | |
| EUR | -0.02% | 0.00% | 0.03% | 0.03% | 0.13% | 0.00% | 0.07% | |
| GBP | -0.03% | 0.00% | 0.02% | 0.03% | 0.13% | 0.00% | 0.06% | |
| CAD | -0.05% | -0.03% | -0.02% | 0.01% | 0.11% | -0.02% | 0.03% | |
| AUD | -0.03% | -0.03% | -0.03% | -0.01% | 0.11% | -0.03% | 0.03% | |
| JPY | -0.14% | -0.13% | -0.12% | -0.11% | -0.13% | -0.10% | -0.06% | |
| NZD | -0.01% | 0.00% | 0.00% | 0.02% | 0.03% | 0.13% | 0.06% | |
| CHF | -0.08% | -0.07% | -0.06% | -0.04% | -0.03% | 0.05% | -0.06% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
Read the full article here