Australian Dollar hovers above the major level post intraday gains
- Australian Dollar faced challenges due to the modestly hawkish tone of FOMC minutes.
- Australia’s Dollar could revisit three-month highs aligned with the 0.6600 psychological level.
- Fed members agreed that policy should remain restrictive until inflation is going down toward the target.
The Australian Dollar (AUD) appears to be recovering some of the recent losses from the previous trading session. Following a corrective move by the US Dollar (USD) after the Federal Open Market Committee (FOMC) meeting minutes on Tuesday, the AUD/USD pair retreated from a three-month high.
Australia’s dollar (AUD) saw upward support following the Reserve Bank of Australia (RBA) Governor Michele Bullock’s remarks and the rather hawkish RBA meeting minutes from November. She said that Australia’s labor market is doing well and the job trend can continue.
Governor Bullock adds that the inflation problem is a major concern for the next year or two since it is a result of underlying demand rather than just supply problems. She will speak again on Wednesday, but no surprises are expected.
According to the FOMC meeting minutes, members would consider tightening monetary policy further if “incoming information indicated that progress towards the Committee’s inflation objective was insufficient.” Policymakers also agreed that policy should remain restrictive for some time until inflation is clearly and sustainably going down towards the Committee’s target.
The US Dollar Index (DXY) begins to retrace its recent gains, while US rates have stayed constant with a bearish tone. Investors await data from the United States (US) due on Wednesday, which includes weekly jobless claims, and the University of Michigan Consumer Sentiment survey.
Daily Digest Market Movers: Australian Dollar experiences strength on hawkish RBA tone
- Australia’s Westpac Leading Index (MoM) for October contracted by 0.03% against the previous 0.07% rise.
- RBA’s meeting minutes revealed that the board acknowledged a “credible case” against an immediate rate hike but considered the case for tightening stronger due to increased inflation risks. The decision on further tightening would hinge on data and risk assessment.
- RBA’s minutes also stressed the importance of preventing even a modest rise in inflation expectations. Board forecasts assumed one or two more rate rises, and rising house prices suggested policy might not be overly restrictive.
- The People’s Bank of China (PBoC) kept its loan prime rate (LPR) unchanged at 3.45% as expected.
- Chinese authorities are expected to take measures to support the real estate sector by drafting a list of 50 eligible developers, both private and state-owned. This list is expected to guide financial institutions in providing support through various means such as bank loans, debt, and equity financing.
- US Existing Home Sales Change (MoM) for October declined by 4.1% as compared to the previous fall of 2.2%.
Technical Analysis: Australian Dollar remains above 0.6550, looks to revisit three-month highs
The Australian Dollar trades higher around the 0.6560 level on Wednesday. The AUD/USD pair may revisit the three-month high at 0.6589 aligned with the resistance area around the psychological level of 0.6600. On the downside, key support could be the major level at 0.6550, followed by the 23.6% Fibonacci retracement at 0.6514. If a break occurs below the level, the nine-day Exponential Moving Average (EMA) at 0.6505 could be the next support aligned with the major level at 0.6500.
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.03% | 0.01% | -0.03% | -0.04% | 0.06% | 0.02% | -0.03% | |
| EUR | 0.02% | 0.02% | 0.00% | -0.01% | 0.09% | 0.04% | -0.02% | |
| GBP | -0.01% | -0.03% | -0.02% | -0.03% | 0.05% | 0.02% | -0.05% | |
| CAD | 0.01% | -0.02% | 0.02% | -0.02% | 0.07% | 0.03% | -0.02% | |
| AUD | 0.01% | 0.00% | 0.04% | 0.02% | 0.10% | 0.05% | -0.01% | |
| JPY | -0.07% | -0.10% | -0.05% | -0.07% | -0.08% | -0.05% | -0.10% | |
| NZD | -0.02% | -0.05% | -0.02% | -0.04% | -0.05% | 0.05% | -0.06% | |
| CHF | 0.04% | 0.02% | 0.05% | 0.03% | 0.00% | 0.10% | 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.