Australian Dollar edges higher as Australian PMI maintains expansion in June
- The Australian Dollar holds positive ground on Thursday.
- The Aussie edges higher as Australian PMI reading has maintained expansion in June.
- Investors await the advanced US S&P Global PMI data, which is due on Friday.
The Australian Dollar (AUD) trades with mild gains in Thursday’s early Asian session. The Aussie edges higher after the recent Australian Judo Bank PMI report suggested that business activity is still growing despite a slower pace than in March and April. Furthermore, the Reserve Bank of Australia’s (RBA) hawkish hold on Tuesday is likely to underpin the AUD in the near term.
However, the escalating geopolitical tensions in the Middle East after Israeli officials reiterated that the country is ready for an all-out war against Hezbollah, might boost safe-haven currencies like the US Dollar (USD). The advanced US S&P Global Manufacturing and Services PMI will take center stage on Friday. If the US business activity showed an improvement in June, this could further support the Greenback and act as a headwind for the pair.
Daily Digest Market Movers: Australian Dollar remains st after the country’s PMI data
- Advanced Australia’s Judo Bank Composite PMI declined in June to 50.6 from 52.1 in May. The Manufacturing PMI dropped to 47.5 in June from 49.7 in the previous reading, weaker than the 50.6 expected. The Services PMI fell to a five-month low of 51.0 in June compared to 51.2 prior, according to the Judo Bank and S&P Global.
- US Initial Jobless Claims for the week ending June 15 rose by 238K, compared to the previous reading of 243K, above the market consensus of 235K.
- US Building Permits dropped by 3.6% MoM in May from 1.44 million to 1.386 million, while Housing Starts for the same period fell by 5.5% from 1.352 million to 1.277 million.
- Richmond Fed President Tom Barkin said on Thursday that the central bank is well-positioned with necessary firepower for job, but will have to maintain a strict data-dependent approach before considering cutting rates.
- Minneapolis Fed President Neel Kashkari noted that it could take one to two years for inflation to return to the Fed’s 2% target, per Reuters.
Technical Analysis: AUD/USD’s constructive bias remains in place
The Australian Dollar trades on a stronger note on the day. The AUD/USD pair has remained stuck within a descending trend channel since May 14. The pair maintains a positive outlook beyond the 100-day Exponential Moving Average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) continues to show bullish momentum, suggesting resistance is more likely to hold than to break.
A decisive break above 0.6675 (the upper boundary of the descending trend channel) could send the pair up to the 0.6700 round mark en route to 0.6760 (high of January 4).
In the bearish case, the key contention level for AUD/USD is seen at 0.6592 (100-day EMA) A breach of the mentioned level will see more loss to 0.6565 (the lower limit of the channel). The additional downside filter to watch is 0.6510, a low of March 22, followed by 0.6465, a low of May 1.
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 | -0.02% | 0.00% | 0.01% | 0.04% | 0.05% | 0.03% | 0.04% | |
| EUR | 0.02% | 0.03% | 0.03% | 0.07% | 0.07% | 0.05% | 0.05% | |
| GBP | -0.02% | -0.03% | 0.00% | 0.04% | 0.04% | 0.02% | 0.03% | |
| CAD | -0.01% | 0.00% | 0.02% | 0.04% | 0.04% | 0.02% | -0.01% | |
| AUD | -0.04% | -0.05% | -0.03% | -0.02% | 0.02% | -0.01% | -0.01% | |
| JPY | -0.04% | -0.07% | -0.03% | -0.02% | 0.02% | 0.02% | 0.00% | |
| NZD | -0.04% | -0.05% | -0.03% | -0.02% | 0.02% | 0.02% | -0.01% | |
| CHF | -0.04% | -0.06% | -0.03% | -0.02% | 0.01% | 0.02% | 0.00% |
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.