Australian Dollar remains subdued amid muted ASX 200, RBA decision eyed
- Australian Dollar remains tepid ahead of RBA’s policy decisions on Tuesday.
- Australian S&P/ASX 200 Index experiences thin trading activity due to market caution.
- US Dollar strengthens as US Treasury yields improve, fueled by expectations of the Fed being hawkish for an extended period.
The Australian Dollar (AUD) hovers around the key level of 0.6550 amid subdued trading activity as market participants exercise caution ahead of the Reserve Bank of Australia’s (RBA) interest rate decision on Tuesday. Investors will closely monitor RBA Governor Michele Bullock’s press conference for further insights. The central bank is widely anticipated to maintain interest rates at their current levels.
The Australian equity market, the benchmark S&P/ASX 200 Index, has edged higher after starting the session positively, driven by gains in the energy and real estate sectors. This upward movement in the stock market may provide support for the Australian Dollar (AUD). Australia’s economy expanded less than anticipated in the fourth quarter of 2023, leading to speculation that the Reserve Bank of Australia could initiate rate cuts later this year.
The US Dollar Index (DXY) strives to extend its gains for the fourth consecutive session, bolstered by an uptick in US Treasury yields. Bond markets have experienced a sell-off following additional evidence of resilience in the United States (US) economy, compelling traders to adjust their expectations for fewer interest rate cuts this year. Investors are eagerly awaiting interest rate decisions from both the People’s Bank of China (PBoC) and the US Federal Reserve (Fed), which are anticipated to be announced on Wednesday.
Daily Digest Market Movers: Australian Dollar remains tepid on market caution
- The ANZ-Roy Morgan Australian Consumer Confidence index, which is published weekly, stands at 81.7, compared to the previous week’s reading of 82.2.
- According to Bloomberg, Westpac anticipates the Reserve Bank of Australia could maintain its cash rate at 4.35% at Tuesday’s meeting.
- ANZ Bank analysts anticipate that the Reserve Bank of Australia (RBA) will maintain a “mild tightening bias,” with no adjustment to interest rates.
- China’s Retail Sales (YoY) increased by 5.5% in February, against the expected 5.2% and 7.4% prior.
- Chinese Industrial Production (YoY) rose by 7.0%, compared to the market expectation of a 5.0% figure in February and 6.8% previous reading.
- According to the CME FedWatch Tool, the probability of a rate cut in March stands at 1.0% and 8.7% for May. The likelihood of a rate cut in June and July is lower, at 55.1% and 73.7%, respectively.
- The preliminary US Michigan Consumer Sentiment Index for March decreased to 76.5, from the previous reading of 76.9. This decline comes in contrast to expectations of it remaining unchanged.
- The Board of Governors of the Federal Reserve released Industrial Production (MoM), which increased by 0.1% in February, against the expected reading of flat 0.0% and from the previous decline of 0.5%.
- The US Core Producer Price Index (PPI) remained consistent with the rise of 2.0% year-over-year in February, maintaining its position above the 1.9% expected. The monthly report showed an increase of 0.3% against 0.5% prior, exceeding the expected 0.2% reading.
- US PPI (YoY) increased by 1.6% in February, surpassing the expected 1.1% and 1.0% prior. PPI (MoM) rose by 0.6% above the market expectation and the previous increase of 0.3%.
Technical Analysis: Australian Dollar maintains position near the major level at 0.6550
The Australian Dollar remains close to the significant threshold of 0.6550 on Tuesday. A breach below this level might prompt downward momentum for the AUD/USD pair, with additional support anticipated around the 61.8% Fibonacci retracement level of 0.6528, and thereafter at the psychological support level of 0.6500. On the upside, the AUD/USD pair could encounter resistance near the nine-day Exponential Moving Average (EMA) at 0.6571, followed by the psychological hurdle at 0.6600.
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 | 0.03% | 0.06% | 0.08% | 0.11% | 0.12% | 0.17% | 0.11% | |
| EUR | -0.03% | 0.02% | 0.04% | 0.08% | 0.09% | 0.12% | 0.08% | |
| GBP | -0.04% | -0.01% | 0.02% | 0.06% | 0.06% | 0.09% | 0.05% | |
| CAD | -0.08% | -0.04% | 0.00% | 0.03% | 0.05% | 0.09% | 0.04% | |
| AUD | -0.09% | -0.08% | -0.06% | -0.04% | 0.02% | 0.08% | -0.02% | |
| JPY | -0.13% | -0.07% | -0.07% | -0.06% | 0.01% | 0.06% | 0.00% | |
| NZD | -0.14% | -0.11% | -0.09% | -0.06% | -0.03% | -0.01% | -0.05% | |
| CHF | -0.10% | -0.07% | -0.05% | -0.03% | 0.01% | 0.02% | 0.07% |
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 has 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.