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Australian Dollar rallies on positive market sentiment


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  • Australian Dollar rises against the US Dollar on Monday after sentiment turns positive supporting commodity currencies. 
  • Data from S&P Global shows US Composite PMI is higher – and in expansionary territory – compared to Aussie correlates.
  • Concerns regarding the impact of interest rates on the Australian housing market as well as China’s lackluster growth cap AUD.  

The Australian Dollar (AUD) reverses and makes gains against the US Dollar (USD) on Monday, after sentiment turns positive, supporting commodity currencies such as the Aussie more than safe-havens like the Buck.

The Australian Dollar makes up losses suffered in the wake of data from ratings agency S&P Global which showed purchasing managers in the US in key sectors – but especially manufacturing – held a more optimistic outlook for the future compared to those in Australia. 

The AUD/USD pair trades in the 0.67s during the US session.  

Australian Dollar news and market movers 

  • The Australian Dollar edges higher on the back of positive market sentiment which fosters a risk-on mood conducive to the Aussie. The Dow Jones Industrial Average (DJIA) is up over 0.5%, the S&P 500 by a similar amount and the Nasdaq by roughly 0.25% during the US session, reflecting the positive market mood. The US Dollar, in comparison, suffers due to its status as a safe haven. 
  • The Australian Dollar had edged lower after the release of S&P Global PMIs showed comparatively better results for the US than Australia, supporting the USD more than the AUD. 
  • Preliminary S&P Global US Manufacturing PMI data actually came out higher than expected at 49, beating estimates of 46.4 and a previous result of 46.3 in June – though still in contractionary territory (below 50). 
  • US S&P Global Composite PMI was also higher at 52, and in expansionary territory compared to Australian Composite PMI, which came out at 48.3 for the same period. 
  • The Australian Dollar is expected to face headwinds as inflation is predicted to fall, reducing pressure on the Reserve Bank of Australia (RBA) to raise interest rates to bring inflation under control. 
  • Since lower interest rates attract less foreign capital inflows they tend to have a negative impact on currencies. 
  • Quarterly inflation figures for Australia are out on Wednesday, July 26, and likely to provide invaluable intelligence for Australian Dollar traders attempting to model the future course of interest rates in Australia. 
  • The Consumer Price Index (CPI) for Australia in the second quarter is estimated to show a 6.2% rise YoY compared to the 7.0% in Q1. On a QoQ basis, it is forecast to show a 1.0% rise versus the 1.4% increase in Q1. 
  • The RBA’s preferred gauge of inflation, the RBA Trimmed Mean CPI, measured quarterly, is out on Wednesday, July 26, at 01:30 GMT. The data is forecast to show a 6.0% rise in Q2 YoY versus the 6.6% of Q1.QoQ it is estimated to show a 1.1% rise, which is below the 1.2% rise in Q1. CPI could be a key driver for the Aussie in the short term. If CPI is lower than expected, it will weigh on AUD and if higher, it will support AUD. 
  • Strong Australian labor market data may influence the inflation figures resulting in higher-than-anticipated results. If that is the case, then the AUD may gain after the release of the CPI data. 
  • The Aussie has weakened on skepticism over China, its largest trading partner’s growth, after the country’s lackluster Q2 GDP readings. 
  • The Federal Reserve’s (Fed) interest rate decision at 18:00 GMT on Wednesday could also impact the AUD/USD pair by way of influencing the US Dollar. 
  • The Fed is already expected to raise interest rates by 0.25%, however, the wording of its accompanying statement may impact the US Dollar. 
  • A more hawkish commentary will come as a surprise as the market is not pricing in further rate hikes from the Fed. As such it would strengthen the US Dollar and weigh on the AUD/USD pair. 
  • The opposite is true if the Fed indicates it may have reached peak rate or even talks about possibly bringing rates down in 2024. 
  • There exists a high risk that the RBA will have to cut rates from their current 4.1% level in 2024 because the Australian house market is dominated by variable-rate mortgages so it is more sensitive to changes in interest rates, and homeowners have recently been adversely affected by higher mortgage interest repayments, according to Bloomberg Intelligence, as quoted by Financial Review. 
  • In comparison, the RBA’s Cash Rate is 4.1%, which is below the Fed’s 5.25% (likely to be 5.50% after Wednesday), thus overall favoring capital flows to the Greenback versus the Aussie.   

Australian Dollar Technical Analysis: Underpinned by confluence of support 

AUD/USD is in a sideways trend on both the long and medium-term charts. The February 2023 high at 0.7158 is a key hurdle on the weekly chart, which if vaulted, will alter the outlook to one that is more bullishly biased. 

Likewise, the 0.6458 low established in June is a key level for bears, which if breached decisively, would give the chart a more bearish overtone. 

Australian Dollar vs US Dollar: Weekly Chart

A confluence of support made up of all the major daily simple moving averages (50, 100 and 200) exists in the upper 0.66s and early 0.67s. This is expected to provide a rigid cordon of support that will make it difficult for bears to push the exchange rate much lower from its level at the time of writing.  

Australian Dollar vs US Dollar: Daily Chart

Only a decisive break below the 50 and 100-day Simple Moving Averages (SMA) would confirm a continuation of the recent bear move lower to a speculative target at the June and July lows in the mid-0.64s. 

A decisive break lower could consist in a long red daily candlestick, which pierces cleanly below the support levels identified and then closes near to the low of the day, or three red down days in a row that break below the support confluence, with the final day closing near its low and a decent distance below the lowest MA. 

There exists the potential for a recovery from the current level, given the underpinning support from the three MAs, however, so far there are no signs of a reversal. Such a sign might come in the form of a candlestick reversal pattern or bullish convergence with the Relative Strength Indicator (RSI) – yet given their absence, it is too early to call a bullish turnaround. 

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.