Australian Dollar maintains its position below a key level, posting losses
- Australian Dollar extends losses after weaker economic data on Wednesday.
- Australia’s AiG Industry Index came in at -9.9, while Building Permits declined by 4.6%.
- China’s Caixin Manufacturing PMI dropped to 49.5 in October against September’s expansion of 50.6.
- IMF contends that the RBA should consider further policy tightening as inflation proves stubborn.
- Higher US Treasury yields support the advance of the US Dollar ahead of the Fed decision.
The Australian Dollar (AUD) extends its losses for the second session, hovering around a key level on Wednesday. The AUD/USD pair faces downward pressure due to the subdued economic data from Australia, coupled with a stronger US Dollar (USD) ahead of the Federal Open Market Committee (FOMC) policy decision.
Australia’s economic data released on Wednesday, featuring the AiG Industry Index and Building Permits (MoM) for September, indicated a downturn. Nevertheless, the Aussie Dollar found reinforcement on Monday, courtesy of robust Retail Sales, which surprised the market by posting a higher reading in September.
Reserve Bank of Australia (RBA) is poised to unveil its policy decision on November 7. Anticipations lean towards a 25 basis points increase in interest rates during the upcoming meeting, driven by heightened inflation.
China’s Caixin Manufacturing Purchasing Managers’ Index (PMI) took an unexpected dip in October as revealed in the latest Wednesday data. This downbeat performance in Chinese Manufacturing PMI contributes to additional pressure on the Aussie Dollar.
International Monetary Fund (IMF) emphasized Australia’s economic resilience in its yearly evaluation, even as inflation proves stubborn. The IMF contends that the Reserve Bank of Australia (RBA) should consider further policy tightening. Australia’s economy, after a robust post-pandemic rebound, is experiencing a slowdown but continues to demonstrate resilience.
The US Dollar Index (DXY) continues to gain ground for the second day, propelled by higher US Treasury yields as the market braces for the upcoming policy decision by the US Federal Reserve (Fed). While expectations suggest the central bank will likely uphold its current monetary policy stance in the Wednesday meeting, the outlook for December’s gathering hinges on data-driven considerations.
Investors are poised to closely monitor the Federal Open Market Committee’s (FOMC) post-meeting message, seeking valuable cues for market participants gauging the potential trajectory of interest rates.
Daily Digest Market Movers: Australian Dollar trades lower on the weaker economic data ahead of the Fed policy decision
- Australia’s AiG Industry Index for September declined to -9.9 against the previous reading of -3.5, while Building Permits (MoM) declined by 4.6% against the market consensus of a 1.3% rise, swinging from the previous growth of 7.0%.
- Australia’s Retail Sales (Month-on-Month) soared to 0.9% in September, surpassing market expectations of 0.3% and the previous figure of 0.2%.
- Australian Consumer Price Index (CPI) for the third quarter of 2023 reached 1.2%, exceeding both the 0.8% uptick in the previous quarter and the market consensus of 1.1% for the same period.
- The Reserve Bank of Australia stated heightened concern about the inflation impact stemming from supply shocks. Governor of the Reserve Bank of Australia, Michele Bullock stated that if inflation persists above projections, the RBA will take responsive policy measures. There is an observable deceleration in demand, and per capita consumption is on the decline.
- China’s Caixin Manufacturing Purchasing Managers’ Index (PMI) dipped to 49.5 in October, contrasting with September’s expansion at 50.6, as revealed in the latest Wednesday data.
- The Chinese Purchasing Managers’ Index (PMI) data released on Tuesday has sparked concerns about the sluggish economic state of the world’s second-largest economy. With Australia being China’s largest trading partner, there’s a heightened possibility of this development influencing the Australian Dollar.
- China’s NBS Manufacturing PMI took an unexpected turn in September, contracting to 49.5, down from the 50.2 expansion observed in July and falling short of the market consensus of 50.2.
- Chinese NBS Services PMI also experienced a decline, dropping to 50.6 in September compared to the anticipated figure of 51.8 and the previous reading of 51.7.
- According to reports, there’s a tentative agreement between the US and China for a meeting between Presidents Joe Biden and Xi Jinping in November. This comes after months of strategic diplomatic efforts to mend relations.
- US Core Personal Consumption Expenditures Price Index (YoY) saw a slight decline to 3.7% from the previous reading of 3.8%. However, the monthly index showed an increase to 0.3%, in line with expectations and up from 0.1% previously.
- The University of Michigan Consumer Index surpassed expectations in October, reporting a figure of 63.8, which was expected to remain consistent at 63.0.
- Investors will focus on the key indicators such as the US ADP Employment Change, and ISM Manufacturing PMI for October ahead of the Fed policy decision, with expectations of the interest rates to be kept at 5.5% in the upcoming meeting on Wednesday.
Technical Analysis: Australian Dollar hovers below 0.6350 psychological level
The Australian Dollar consolidates beneath the crucial level of 0.6350, with the annual low at 0.6270 potentially serving as a significant support, closely aligned with the major level around 0.6250. On the upside, attention is drawn to the pivotal resistance situated around the 50-day Exponential Moving Average (EMA) at 0.6400. A breakthrough above this resistance has the potential to propel the currency towards the 23.6% Fibonacci retracement level at 0.6419.
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 weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.06% | 0.07% | 0.03% | 0.10% | -0.04% | 0.13% | 0.03% | |
| EUR | -0.07% | 0.00% | -0.01% | 0.02% | -0.10% | 0.06% | -0.03% | |
| GBP | -0.06% | 0.01% | -0.01% | 0.02% | -0.10% | 0.06% | -0.03% | |
| CAD | -0.04% | 0.03% | 0.03% | 0.05% | -0.07% | 0.10% | -0.01% | |
| AUD | -0.10% | -0.03% | -0.03% | -0.07% | -0.11% | 0.05% | -0.06% | |
| JPY | 0.03% | 0.10% | 0.11% | 0.09% | 0.10% | 0.17% | 0.10% | |
| NZD | -0.13% | -0.06% | -0.05% | -0.08% | -0.04% | -0.16% | -0.09% | |
| CHF | -0.02% | 0.04% | 0.05% | 0.01% | 0.05% | -0.08% | 0.12% |
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.