Australian Dollar remains flat, while US Dollar improves ahead of ISM PMI
- The Australian Dollar hovers around a key level of 0.6650 on Monday.
- Australian minimum wage increased by 3.75%, aligning with the expected range of 3.50%-4.00%.
- The US Dollar has trimmed its daily losses ahead of the ISM Manufacturing PMI.
The Australian Dollar (AUD) stays steady as investors turn cautious ahead of the ISM Manufacturing PMI release on Monday. During the early hours of the Asian session, AUD received support as the minimum wage increased by 3.75% in Australia, aligning with market estimates that ranged from 3.5% to 4.0%. Additionally, the AUD/USD pair strengthened as the US Personal Consumption Expenditure (PCE) data, the Federal Reserve’s preferred measure of inflation, showed that price pressures eased in April. Moreover, Australia’s monthly inflation rate also accelerated to 3.6%, increasing the likelihood that the Reserve Bank of Australia (RBA) might need to raise interest rates again.
The Australian Dollar also benefited from the Caixin Manufacturing Purchasing Managers Index (PMI) in China, which posted a higher-than-expected reading for May. However, on Friday, lower-than-expected NBS PMI data from China dented import demand for Australia, a top commodity producer. Given the close trade relationship between Australia and China, any changes in the Chinese economy can significantly impact the Australian market.
The US Dollar (USD) continues to lose ground due to the depreciation in the US Treasury yields. Federal Reserve (Fed) officials indicated last week that the central bank may reach its 2% annual inflation target without further interest rate hikes. Investors are expected to closely monitor the ISM Manufacturing PMI on Monday, with attention potentially shifting to the US Nonfarm Payrolls report on Friday.
Daily Digest Market Movers: Australian Dollar edges lower due to investors’ caution
- Australia’s Judo Bank Manufacturing PMI released on Monday, edging up slightly to 49.7 in May from 49.6 in April, marking the fourth consecutive month of declining conditions in the manufacturing sector.
- On Monday, the Caixin China Manufacturing PMI rose to 51.7 in May from 51.4 in April, marking the seventh consecutive month of expansion in factory activity and surpassing the estimates of 51.5. Friday’s NBS PMI data showed that manufacturing activity fell to 49.5 in May from 50.4 in April, missing the market consensus of an increase to 50.5. Meanwhile, the Non-Manufacturing PMI declined to 51.1 from the previous reading of 51.2, falling short of the estimated 51.5.
- On Friday, the US PCE Index rose 0.3% MoM and 2.7% YoY in April, matching the expectations. The Core PCE, excluding the volatile food and energy, climbed 0.2% MoM in April, lower than the expected 0.3% rise. On an annual basis, the index jumped 2.8% as expected.
- On Thursday, Atlanta Fed President Raphael Bostic remarked in an interview with Fox Business that he doesn’t believe further rate hikes should be required to reach the Fed’s 2% annual inflation target. Additionally, New York Fed President John Williams stated that inflation is still too high but should moderate over the second half of 2024. Williams doesn’t feel the urgency to act on monetary policy.
- As per a Bloomberg report, RBA Assistant Governor Sarah Hunter said at a conference in Sydney on Thursday that “inflationary pressures” are the key issue. “We’re very mindful of that.” Hunter also stated that the RBA Board is concerned about inflation remaining above the target range of 1%-3%, suggesting persistent inflationary pressure. Wages growth appears to be near its peak.
Technical Analysis: Australian Dollar remains above 0.6650
The Australian Dollar traded around 0.6660 on Monday. A daily chart analysis suggests a bullish bias for the AUD/USD pair, as it appears to be moving upward from the lower boundary of a rising wedge pattern. Furthermore, the 14-day Relative Strength Index (RSI) is positioned above the 50 level, confirming this bullish bias.
The AUD/USD pair could aim for the psychological level of 0.6700, followed by the four-month high of 0.6714 and the upper limit of the rising wedge around 0.6750.
On the downside, immediate support is seen at the 21-day Exponential Moving Average (EMA) at 0.6624, followed by the psychological level of 0.6600 around the lower boundary of the rising wedge. Further decline might exert downward pressure on the AUD/USD pair, potentially leading it toward the throwback support region at 0.6470.
AUD/USD: Daily Chart
Australian Dollar price today
The table below shows the percentage change of the Australian Dollar (AUD) against listed major currencies today. The Australian Dollar was the weakest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.01% | 0.06% | 0.12% | 0.16% | 0.13% | 0.07% | 0.00% | |
| EUR | -0.01% | 0.05% | 0.12% | 0.15% | 0.12% | 0.06% | 0.00% | |
| GBP | -0.06% | -0.04% | 0.07% | 0.09% | 0.08% | 0.02% | -0.05% | |
| CAD | -0.12% | -0.11% | -0.07% | 0.03% | 0.01% | -0.04% | -0.11% | |
| AUD | -0.16% | -0.14% | -0.09% | -0.03% | 0.00% | -0.07% | -0.14% | |
| JPY | -0.12% | -0.11% | -0.06% | -0.02% | 0.00% | -0.05% | -0.12% | |
| NZD | -0.07% | -0.07% | -0.02% | 0.05% | 0.08% | 0.06% | -0.07% | |
| CHF | -0.01% | 0.00% | 0.05% | 0.12% | 0.14% | 0.13% | 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 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.