Australian Dollar experiences volatility amid risk-off sentiment
- The Australian Dollar moves sideways as the US Dollar appreciates amid increased risk aversion.
- The Aussie Dollar may appreciate as the RBA is widely expected to continue its hawkish monetary policy.
- The US Dollar receives support from rising odds of a nominal rate cut by the Fed in November.
The Australian Dollar (AUD) grapples to secure its previous session’s gains on Wednesday. However, the AUD/USD pair faced pressure as the US Dollar (USD) strengthened with rising Treasury yields. Market risk aversion has increased due to the growing likelihood of Donald Trump winning the presidency, adding to the selling pressure on US Treasury bonds.
The downside for the AUD could be restrained due to hawkish sentiment around the Reserve Bank of Australia (RBA), bolstered by the positive employment data. Further support for the Aussie Dollar came from China’s recent rate cuts, as China remains Australia’s largest trading partner.
The US Dollar gains ground as recent signs of economic resilience and concerns about a potential resurgence of inflation have diminished the chances of a significant rate cut by the Federal Reserve in November.
According to the CME FedWatch Tool, there is a 91% probability of a 25-basis-point rate cut, with no expectation of a larger 50-basis-point cut.
Daily Digest Market Movers: Australian Dollar loses ground due to increased risk aversion
- 2-year and 10-year yields on US Treasury bonds stand at 4.04% and 4.21%, respectively, at the time of writing.
- 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.
- San Francisco Fed President Mary Daly supported further easing, stating she sees no reason to stop lowering rates. In contrast, Kansas City Fed President Jeffrey Schmid adopted a more cautious approach, favoring restraint in large rate cuts and emphasizing that the labor market is undergoing normalization rather than showing signs of deterioration.
- On Monday, RBA Deputy Governor Andrew Hauser addressed the CBA 2024 Global Markets Conference in Sydney, expressing slight surprise at the strength of employment growth. Hauser noted that the labor participation rate is remarkably high and emphasized that while the RBA is data-dependent, it is not data-obsessed.
- 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%, 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 falls toward 0.6650, six-week lows
The AUD/USD pair trades around 0.6670 on Wednesday, with technical analysis of the daily chart pointing to a short-term bearish outlook as the pair remains below the nine-day Exponential Moving Average (EMA). Additionally, the 14-day Relative Strength Index (RSI) is below 50, further supporting the bearish sentiment.
On the downside, the AUD/USD pair could test its six-week low of 0.6622, last seen on September 11. The next key support is at the psychological level of 0.6600.
Resistance is expected at the nine-day EMA at 0.6698, followed by the 50-day EMA at 0.6733. A break above these levels could pave the way for a move toward the psychological resistance 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 strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.02% | -0.01% | 0.44% | 0.00% | -0.03% | -0.06% | 0.11% | |
| EUR | -0.02% | -0.01% | 0.43% | 0.03% | -0.03% | -0.09% | 0.10% | |
| GBP | 0.00% | 0.00% | 0.43% | -0.01% | -0.02% | -0.05% | 0.16% | |
| JPY | -0.44% | -0.43% | -0.43% | -0.43% | -0.47% | -0.50% | -0.28% | |
| CAD | -0.01% | -0.03% | 0.00% | 0.43% | -0.03% | -0.05% | 0.16% | |
| AUD | 0.03% | 0.03% | 0.02% | 0.47% | 0.03% | -0.02% | 0.18% | |
| NZD | 0.06% | 0.09% | 0.05% | 0.50% | 0.05% | 0.02% | 0.20% | |
| CHF | -0.11% | -0.10% | -0.16% | 0.28% | -0.16% | -0.18% | -0.20% |
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.