- Australian Dollar pulls back from weekly highs ahead of the US Core PPI.
- Australia’s RBA is expected to increase interest rates; contributing support for the Aussie Dollar.
- The slew of dovish remarks by Fed officials contribute to pressure on the US Dollar.
The Australian Dollar (AUD) halts the five-day winning streak that began last week on a downbeat US Dollar (USD). The AUD/USD pair is strengthening as the likelihood of another interest rate hike by the Reserve Bank of Australia (RBA) increases. This trend can be linked to growing inflation expectations fueled by higher oil prices.
Australia might witness robust underlying commodity prices owing to the ongoing conflict in the Middle East. Additionally, Westpac Consumer Confidence data for October indicates an improvement in individual confidence during the same period.
Australia’s business conditions showed resilience in September despite a deceleration in inflation. Moreover, Consumer Sentiment rebounded in October with unchanged rates, but the overall sentiment remained overshadowed by the rising cost of living.
Christopher Kent, Assistant Governor (Financial Markets) at the Reserve Bank of Australia (RBA), addressed the Bloomberg gathering in Sydney on Wednesday. Kent highlighted the chance to observe the economy’s response to previous interest rate hikes. There are currently no intentions to accelerate the rate of bond holdings. In the event of bond sales, the approach would be careful to avoid market disturbances.
Kent also noted instances of rapid wage growth in specific sectors, although the overall impact remains contained. While acknowledging the significance of Consumer Price Index (CPI) data, Kent emphasized that it is not the sole factor influencing policy considerations.
The US Dollar Index (DXY) loses its ground to extend losses that began last week. The US Dollar (USD) faced a challenge despite a minor recovery in US Treasury yields on Tuesday.
Furthermore, a series of dovish-leaning comments from Fed policymakers have resonated in the markets, with many expressing worries that elevated long-term US bond yields might hinder their inclination to raise rates in the upcoming meetings.
Daily Digest Market Movers: Australian Dollar extends gains on RBA interest rate trajectory
- Australia experienced a rebound in inflation in August, primarily attributed to higher oil prices. This development increases the likelihood of another interest rate hike by the Reserve Bank of Australia (RBA).
- The escalation of the Middle East conflict could prompt the RBA to implement a 25 basis points (bps) interest rate hike, bringing it to 4.35% by the end of the year.
- The heightened geopolitical tension is contributing to increased demand for commodities like energy and gold, positively influencing the performance of the AUD/USD pair.
- Australia’s Westpac Consumer Confidence showed that current buying conditions improved in October. The index rose 2.9% from the previous 1.5% decline in September.
- After engaging in discussions with US Senators on Tuesday, China’s Commerce Minister, Wang Wentao, expressed that “both sides had rational and pragmatic discussions.” Emphasizing the significance of the US-China economic and trade relationship.
- The US Nonfarm Payroll report for September revealed a notable increase of 336,000 jobs, surpassing the market expectation of 170,000. The revised figure for August stood at 227,000.
- US Average Hourly Earnings (MoM) remained steady at 0.2% in September, falling short of the expected 0.3%. On an annual basis, the report indicated a rise of 4.2%, below the anticipated consistent figure of 4.3%.
- The yields on US Treasury bonds slightly recovered on Tuesday. However, the 10-year US Treasury bond yield stands down at 4.64%.
- Atlanta’s Fed President Raphael Bostic went on record stating that the current monetary policy is already restrictive, rendering additional rate hikes unnecessary, following the dovish trajectory established by two fellow Fed colleagues on Monday, Minneapolis Fed President Neel Kashkari echoed a similar sentiment on Tuesday.
- Investors will closely watch economic data, particularly focusing on inflation figures. The Producer Price Index (PPI) is scheduled for Wednesday, followed by the release of the FOMC meeting minutes and the Consumer Price Index (CPI) on Thursday along with Australia’s Consumer Inflation Expectations.
Technical Analysis: Australian Dollar pulls back, 23.6% Fibonacci retracement acts as a barrier
The Australian Dollar moves below the 23.6% Fibonacci retracement level at 0.6429 on Wednesday, presenting a noteworthy barrier. A decisive breakthrough above this level could open the door for further upward exploration, targeting the psychological level of 0.6450. Beyond that, the 50-day Exponential Moving Average (EMA) at 0.6456 emerges as a potential resistance, following the 38.2% Fibonacci retracement at 0.6518. On the downside, a pivotal support level is identified at 0.6300, followed by the November low at 0.6272. These levels play a crucial role in indicating potential shifts in the trajectory of the AUD/USD pair.
AUD/USD: Daily Chart
Australian Dollar price today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.01% | -0.03% | 0.04% | 0.18% | 0.15% | 0.26% | -0.01% | |
| EUR | 0.01% | -0.02% | 0.04% | 0.18% | 0.16% | 0.27% | -0.01% | |
| GBP | 0.02% | 0.01% | 0.07% | 0.20% | 0.18% | 0.30% | 0.02% | |
| CAD | -0.03% | -0.05% | -0.07% | 0.14% | 0.12% | 0.22% | -0.06% | |
| AUD | -0.18% | -0.18% | -0.18% | -0.14% | -0.02% | 0.07% | -0.19% | |
| JPY | -0.15% | -0.15% | -0.18% | -0.12% | 0.02% | 0.13% | -0.17% | |
| NZD | -0.26% | -0.28% | -0.31% | -0.22% | -0.09% | -0.12% | -0.29% | |
| CHF | 0.01% | 0.02% | -0.01% | 0.05% | 0.19% | 0.17% | 0.27% |
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.
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