Australian Dollar depreciates as the US Dollar edges higher due to increased risk aversion
- The Australian Dollar loses ground despite the hawkish RBA’s policy outlook.
- The AUD inches lower as the US Dollar appreciates amid less-dovish sentiment surrounding the Fed.
- CME FedWatch Tool suggests a 97% chance of a 25-basis-point rate cut by the Fed in November.
The Australian Dollar (AUD) edged lower against the US Dollar (USD) on Thursday. However, the AUD/USD pair saw some gains as the US Dollar (USD) softened slightly due to a modest decline in US Treasury yields. Traders are also closely observing the Reserve Bank of Australia’s (RBA) annual report.
The Aussie Dollar could benefit from the hawkish tone surrounding the RBA. Earlier this week, RBA Deputy Governor Andrew Hauser highlighted the country’s strong labor participation rate and stressed that, although the RBA relies on data, it is not overly fixated on it.
The US Dollar strengthens as traders closely monitor the Federal Reserve’s (Fed) interest rate path, with growing expectations that the central bank will not lower rates as aggressively as previously anticipated. This shift in sentiment follows the release of strong economic data, which suggests that the US economy remains resilient and may support a more cautious approach to rate cuts.
According to the CME FedWatch Tool, there is a 97% probability of a 25-basis-point rate cut by the Fed in November, with no expectation of a larger 50-basis-point cut.
Daily Digest Market Movers: Australian Dollar depreciates despite a hawkish RBA’s stance
- S&P Global has released its preliminary October US Purchasing Managers Index (PMI) readings, showing positive momentum across sectors. The Composite PMI rose to 54.3, up from the previous 54.0. The Services PMI exceeded expectations at 55.3, compared to the forecasted 55.0, and saw a slight increase from the previous 55.2. Meanwhile, the Manufacturing PMI also came in stronger at 47.8, above the expected 47.5, and improving from the prior reading of 47.3.
- Australia’s Judo Bank Composite PMI slightly rose to 49.8 in October, up from 49.6 in September, signaling a second straight month of contraction in private sector output. The Services PMI inched up to 50.6 from 50.5, marking its ninth consecutive month of expansion, while the Manufacturing PMI dipped to 46.6 from 46.7, continuing its decline.
- On Wednesday, the Fed Beige Book indicated that economic activity was “little changed in nearly all Districts,” in contrast to August’s report, in which three Districts reported growth and nine showed flat activity.
- In a post on the social media platform X, Federal Reserve Bank of San Francisco President Mary Daly stated that the economy is clearly in a better position, with inflation having fallen significantly and the labor market returning to a more sustainable path.
- On Monday, Federal Reserve Bank of Minneapolis President Neel Kashkari highlighted that the Fed is closely monitoring the US labor market for signs of rapid destabilization. Kashkari cautioned investors to anticipate a gradual pace of rate cuts over the coming quarters, suggesting that any monetary easing will likely be moderate rather than aggressive.
- The People’s Bank of China (PBoC) reduced the 1-year Loan Prime Rate (LPR) to 3.10% from 3.35% and the 5-year LPR to 3.60% from 3.85%, which is in line with expectations. Lower borrowing costs are anticipated to stimulate China’s domestic economic activity, potentially increasing demand for Australian exports.
- National Australia Bank revised its projection for the Reserve Bank of Australia (RBA) in a note last week. “We have brought forward our expectations for the timing of rate cuts, now anticipating the first cut in February 2025, instead of May,” the bank stated. They continue to foresee gradual cuts, with rates expected to decrease to 3.10% by early 2026.
Technical Analysis: Australian Dollar stays below 0.6650, close to two-month lows
The AUD/USD pair trades around 0.6640 on Thursday, with technical analysis of the daily chart indicating a short-term bearish trend. The pair remains below the nine-day Exponential Moving Average (EMA), and the 14-day Relative Strength Index (RSI) is below 50, further confirming bearish bias.
On the support side, the AUD/USD pair is testing its two-month low of 0.6614, reached on Wednesday. The next major support level lies at the psychological threshold of 0.6600.
Regarding the upside, resistance is anticipated at the nine-day EMA at 0.6672, followed by the 50-day EMA at 0.6724. A break above these resistance levels could pave the way for a potential move toward the psychological barrier of 0.6800.
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 | 0.00% | 0.02% | -0.03% | -0.03% | 0.09% | 0.12% | 0.03% | |
| EUR | -0.01% | 0.02% | -0.02% | -0.04% | 0.07% | 0.12% | 0.03% | |
| GBP | -0.02% | -0.02% | -0.06% | -0.07% | 0.04% | 0.10% | -0.03% | |
| JPY | 0.03% | 0.02% | 0.06% | -0.01% | 0.11% | 0.15% | 0.05% | |
| CAD | 0.03% | 0.04% | 0.07% | 0.01% | 0.11% | 0.16% | 0.04% | |
| AUD | -0.09% | -0.07% | -0.04% | -0.11% | -0.11% | 0.05% | -0.07% | |
| NZD | -0.12% | -0.12% | -0.10% | -0.15% | -0.16% | -0.05% | -0.13% | |
| CHF | -0.03% | -0.03% | 0.03% | -0.05% | -0.04% | 0.07% | 0.13% |
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).
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.