Australian Dollar maintains its position above major level, focus on Fed decision
- Australian Dollar hovers around a major level ahead of the US PPI, Fed policy decision.
- Australia’s Treasurer Jim Chalmers presented a budget forecast of AUD 1.1 billion in the MYEFO, down from the AUD 13.9 billion previous forecast.
- US CPI and Core CPI came in at 3.1% and 4.0% YoY, respectively, as expected.
- FOMC is expected to make no change in its policy rates.
The Australian Dollar (AUD) continues to lose ground on Wednesday, particularly after the release of moderate Consumer Price Index (CPI) data from the United States (US). The AUD/USD pair exhibited high volatility in the previous session, experiencing a modest drop after briefly surpassing the 0.6600 level. Market participants are now awaiting the release of the US Producer Price Index (PPI) and the Federal Reserve’s (Fed) Interest Rate Decision later in the North American session.
Australia’s government anticipates a significantly improved budget bottom line this year as revenues outpace forecasts. In the mid-year economic and fiscal outlook (MYEFO) presented by Labor Treasurer Jim Chalmers, a budget deficit of just AUD 1.1 billion (USD 721.4 million) in the year to end June 2024 is projected, down from the AUD 13.9 billion forecasted back in May. The government is resisting calls for additional cost-of-living handouts to avoid exacerbating inflationary pressures.
The US Dollar Index (DXY) attempts to recover recent losses amid downbeat US Treasury yields. The DXY has experienced a drop, with the Federal Open Market Committee (FOMC) anticipated to make no adjustments in its last policy decision. Inflation in the US cooled as expected in November, as indicated by the Consumer Price Index (CPI). Investors will likely closely monitor Fed Chair Jerome Powell’s comments for signals about potential rate adjustments in the coming year.
Daily Digest Market Movers: Australian Dollar moves downward amid hawkish RBA
- ANZ-Roy Morgan Australian Consumer Confidence weekly survey rose to 80.8 from the previous week’s 76.4.
- Westpac Consumer Confidence for December showed improvement at 2.7% from the previous decline of 2.6%.
- National Australia Bank Business Confidence, which surveys the current business conditions in Australia and provides insights into the short-term performance of the overall economy, declined to 9 from the previous decrease of 2.
- RBA Governor Michele Bullock expressed confidence, stating, “Don’t think we are falling behind in the inflation fight.” Bullock emphasized a cautious approach, closely monitoring data, and highlighted the RBA’s commitment to preserving employment gains.
- US Bureau of Labor Statistics revealed on Tuesday that the US Consumer Price Index (CPI) for November rose by 0.1% month-on-month and 3.1% year-on-year. Both figures aligned with market consensus, indicating that inflation levels met expectations.
- US Core CPI, which excludes volatile food and energy prices, climbed by 0.3% MoM and 4.0% YoY, in line with expectations.
Technical Analysis: Australian Dollar hovers around the major level at 0.6550
The Australian Dollar trades around 0.6560 on Wednesday. The 21-day Exponential Moving Average (EMA) at 0.6554 serves as a key support level before the significant level at 0.6550. If this support area is breached, it could exert downward pressure on the AUD/USD pair, potentially leading it toward the 38.2% Fibonacci retracement level at 0.6526. On the upside, the region around the psychological level at 0.6600 is likely to act again as a potential resistance barrier.
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 US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.09% | 0.14% | 0.03% | 0.11% | 0.24% | 0.60% | 0.05% | |
| EUR | -0.09% | 0.05% | -0.05% | 0.00% | 0.14% | 0.49% | -0.05% | |
| GBP | -0.15% | -0.06% | -0.10% | -0.04% | 0.10% | 0.45% | -0.10% | |
| CAD | -0.04% | 0.04% | 0.10% | 0.04% | 0.20% | 0.55% | -0.02% | |
| AUD | -0.09% | -0.02% | 0.04% | -0.05% | 0.12% | 0.49% | -0.07% | |
| JPY | -0.24% | -0.15% | -0.11% | -0.22% | -0.16% | 0.35% | -0.20% | |
| NZD | -0.59% | -0.50% | -0.43% | -0.51% | -0.47% | -0.34% | -0.54% | |
| CHF | -0.05% | 0.05% | 0.09% | 0.00% | 0.05% | 0.20% | 0.54% |
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.