Australian Dollar struggles to extend gains ahead of US inflation data
- Australian Dollar treads water while the US Dollar looks to recover losses.
- Australia’s consumer sentiment declined by 2.6% in November, compared to the previous growth of 2.9%.
- Greenback could gain ground due to the recovery in US bond yields.
The Australian Dollar (AUD) struggles to extend gains during the Asian session on Tuesday while the US Dollar (USD) attempts to recover recent losses on the back of a recovery in US Treasury yields.
Australia’s Westpac Consumer Confidence revealed on Tuesday that consumer sentiment fell substantially in November, which could undermine the Aussie Dollar (AUD). Additionally, the AUD was under pressure after the Reserve Bank of Australia (RBA) struck a dovish chord in its last meeting.
RBA painted a challenging economic picture in its Monetary Policy Statement (MPS) last Friday, pointing to stubborn inflation and a sluggish Australian economy. The RBA has its sights set on realigning inflation with its target.
AUD could have cheered the hawkish statement from the RBA Assistant Governor (Economic) Marion Kohler. Kohler stated that the decline in inflation is expected to be slower than initially anticipated. This is attributed to the persistent high level of domestic demand and robust pressures from labor and other costs. Kohler emphasized the need for a tighter policy to address the challenges posed by elevated inflation.
The US Dollar Index (DXY) struggles to snap a two-day losing streak ahead of the inflation data from the United States (US) set to be released on Tuesday. Projections suggest that the Consumer Price Index (CPI) will rise in October at a slowing pace. The forecast for the core annual rate remains steady. If the data aligns with expectations, it could solidify the market’s belief that the Federal Reserve (Fed) has concluded its interest rate hikes.
Daily Digest Market Movers: Australian Dollar maintains its position after rebounding from the previous week’s low
- Australia’s Westpac Consumer Confidence declined by 2.6% in November, swinging from the previous growth of 2.9%.
- RBA highlighted the challenges stemming from persistent inflationary pressures and a sluggish domestic economy in its Monetary Policy Statement (MPS) last Friday.
- RBA board acknowledges the financial struggles of many households. Budgets are indeed feeling the squeeze. In a twist of economic dynamics, the central bank painted a mixed picture by raising its forecasts for both inflation and GDP growth.
- RBA increased the Official Cash Rate (OCR) from 4.10% to a 12-year high of 4.35%, responding to the latest Monthly Consumer Price Index (YoY) for September, which indicated a notable increase of 5.6% compared to the expected 5.4% growth.
- Australia’s TD Securities Inflation (YoY) eased at 5.1% in September from 5.7% prior.
- Economists at the National Australia Bank (NAB) anticipate another 25 basis points hike in February following the Q4 inflation data. Additionally, NAB believes rate cuts will unlikely commence until November 2024.
- The upcoming US-Sino Presidential meeting is on the horizon, and US President Joe Biden aims to rebuild military-to-military connections with China. The much-anticipated face-to-face between Biden and Chinese President Xi Jinping is scheduled for Wednesday during the Asia-Pacific Economic Cooperation summit in San Francisco., marking their first in-person meeting in a year.
- China’s Consumer Price Index (CPI) witnessed an annual decline of 0.2% in October, compared to the expected 0.1% decrease. The monthly CPI dropped by 0.1%, contrasting with the earlier 0.2% growth. A weaker economic scenario in China casts a shadow over the Aussie Dollar (AUD), given Australia’s heavy reliance on its largest trading partner.
- Federal Reserve (Fed) Chair Jerome Powell surprised in his speech on Thursday, taking a more hawkish stance than anticipated. Powell expressed concerns that the current policies might not be restrictive enough to reel inflation to the coveted 2.0% target.
- US Monthly Budget Statement reported a deficit of $67B in October, compared to the expected deficit of $65B.
- US preliminary US Michigan Consumer Sentiment data for November showed a dip in the mood among consumers. It fell to 60.4 from 63.8 in the previous month.
Technical Analysis: Australian Dollar remains above 0.6350 followed by the barrier at the 14-day EMA
The Australian Dollar trades higher near 0.6380 on Tuesday, with the 14-day Exponential Moving Average (EMA) at 0.6389 as the initial resistance. A significant barrier is also present at the psychological level of 0.6400. If there’s a convincing breakthrough above this level, it may pave the way for the AUD/USD pair to explore the region around the 23.6% Fibonacci retracement at 0.6417. On the downside, the major support level at 0.6350 comes into play, followed by the three-week low at 0.6314.
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 Euro.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.02% | 0.05% | 0.02% | 0.00% | 0.05% | 0.05% | 0.08% | |
| EUR | -0.02% | 0.04% | 0.00% | -0.01% | 0.03% | 0.03% | 0.07% | |
| GBP | -0.04% | -0.02% | -0.02% | -0.03% | 0.00% | 0.01% | 0.05% | |
| CAD | -0.02% | 0.00% | 0.02% | -0.02% | 0.01% | 0.02% | 0.08% | |
| AUD | 0.00% | -0.01% | 0.02% | 0.02% | 0.04% | 0.04% | 0.08% | |
| JPY | -0.04% | -0.02% | 0.02% | -0.02% | -0.04% | 0.03% | 0.04% | |
| NZD | -0.04% | -0.02% | 0.01% | 0.00% | -0.03% | 0.01% | 0.05% | |
| CHF | -0.07% | -0.05% | -0.02% | -0.05% | -0.06% | -0.02% | -0.02% |
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.