Australian Dollar holds losses despite hawkish RBA Bullock, ISM Manufacturing PMI eyed
- The Australian Dollar depreciates following the release of Trade Balance data on Thursday.
- Australia’s Trade Balance posted a surplus of 6,009 million MoM in July, against the expected 5,150 million.
- The US Dollar received downward pressure following recent downbeat economic data.
The Australian Dollar (AUD) inches lower against the US Dollar (USD) despite positive Trade Balance data released on Thursday. Australia’s trade surplus widened to 6,009 million MoM in July, exceeding the expected 5,150 million and 5,589 million in the previous reading.
The Reserve Bank of Australia (RBA) Governor Michele Bullock spoke at “The Anika Foundation” in Sydney on “The Costs of High Inflation,” stating that it is too early to consider rate cuts. Currently, the board does not anticipate being able to reduce rates in the near term.
The Australian Dollar received downward pressure as recent figures showed that Australia’s Gross Domestic Product (GDP) grew in the second quarter but fell short of the market expectations. A private survey also showed that the country’s manufacturing activity remained contractionary in August, extending the sector’s deterioration to two years.
The US Dollar depreciated after July’s US JOLTS Job Openings came in below expectations, signaling a further slowdown in the labor market. Additionally, the ISM Manufacturing PMI showed that factory activity contracted for the fifth straight month.
Traders now await US ISM Services PMI and Initial Jobless Claims scheduled to be released on Thursday. Attention will shift to Friday’s US Nonfarm Payrolls (NFP) to gain more cues on the potential size of an expected rate cut by the Fed this month.
Daily Digest Market Movers: Australian Dollar depreciates ahead of US key data
- Atlanta Federal Reserve President Raphael Bostic said on Wednesday that the Fed is in a favorable position but added that they must not maintain a restrictive policy stance for too long, per Reuters. FXStreet’s FedTracker, which gauges the tone of Fed officials’ speeches on a dovish-to-hawkish scale from 0 to 10 using a custom AI model, rated Bostic’s words as neutral with a score of 4.6.
- US JOLTS Job Openings dropped to 7.673 million in July, down from 7.910 million in June, marking the lowest level since January 2021 and falling short of market expectations of 8.10 million.
- Bank of America (BoA) has revised its economic growth forecast for China, lowering its 2024 projection to 4.8% from the previous 5.0%. For 2025, the forecast is adjusted to 4.5% growth, while the 2026 outlook remains unchanged at 4.5%.
- China’s Services Purchasing Managers’ Index (PMI) fell from 52.1 in July to 51.6 in August, which is notable considering the close trade relationship between China and Australia.
- Australia’s Gross Domestic Product (GDP) posted a 0.2% reading QoQ for the second quarter, up from the previous quarter’s 0.1% but falling short of the expected 0.3% readings.
- The Judo Bank Composite PMI climbed to 51.7 in August, up from 51.4 in July, signaling the fastest expansion in three months. This growth was primarily fueled by a rise in services activity, with the Services PMI reaching 52.5 in August, up from 52.2 in July, marking the seventh consecutive month of growth in the services sector.
- The US ISM Manufacturing PMI inched up to 47.2 in August from 46.8 in July, falling short of market expectations of 47.5. This marks the 21st contraction in US factory activity over the past 22 months.
Technical Analysis: Australian Dollar holds ground above 0.6700
The Australian Dollar trades around 0.6720 on Thursday. Analyzing the daily chart, the AUD/USD pair is positioned below the nine-day Exponential Moving Average (EMA), suggesting a short-term pause amid the overarching upward momentum. Also, the 14-day Relative Strength Index (RSI) remains above the 50 level, suggesting that the asset price is leaning toward the bullish side.
On the downside, the AUD/USD pair could test the throwback level near 0.6575, with a deeper decline potentially aiming for the lower support around 0.6470.
In terms of resistance, the AUD/USD pair may first encounter the immediate barrier at the 14-day EMA around 0.6731, followed by the nine-day EMA at 0.6742. A break above these levels could pave the way for a test of the seven-month high at 0.6798.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.03% | -0.03% | -0.19% | 0.02% | 0.03% | -0.06% | -0.03% | |
| EUR | -0.03% | -0.05% | -0.19% | 0.01% | 0.00% | -0.05% | -0.06% | |
| GBP | 0.03% | 0.05% | -0.15% | 0.07% | 0.06% | -0.00% | -0.01% | |
| JPY | 0.19% | 0.19% | 0.15% | 0.19% | 0.20% | 0.11% | 0.15% | |
| CAD | -0.02% | -0.01% | -0.07% | -0.19% | 0.02% | -0.07% | -0.06% | |
| AUD | -0.03% | -0.01% | -0.06% | -0.20% | -0.02% | -0.07% | -0.08% | |
| NZD | 0.06% | 0.05% | 0.00% | -0.11% | 0.07% | 0.07% | 0.00% | |
| CHF | 0.03% | 0.06% | 0.01% | -0.15% | 0.06% | 0.08% | -0.01% |
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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (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.