Australian Dollar receives downward pressure from increased RBA rate cut bets | FXStreet
The Australian Dollar (AUD) steadies against the US Dollar (USD) after the release of the preliminary S&P Global Purchasing Managers Index (PMI) on Friday. Traders await key quarterly inflation data for Australia next week that could shape the Reserve Bank of Australia’s (RBA) policy outlook.
The preliminary Australia’s S&P Global Manufacturing Purchasing Managers Index (PMI) fell to 49.7 in October from 51.4 prior. Meanwhile, Services PMI rose to 53.1 in October from the previous reading of 52.4, while the Composite PMI increased to 52.6 in October against 52.4 prior.
RBA Governor Michele Bullock spoke in Sydney but made no comments on monetary policy or the economy. Bullock stated that starting next year, the central bank will consider ways to modernize the interbank settlement system, which processes around A$300 billion ($194.94 billion) in daily transactions and plays a key role in the payments infrastructure, per Reuters.
The AUD could face challenges amid growing bets of a near-term rate cut by the Reserve Bank of Australia (RBA). Australia’s latest employment report threw an unexpected curveball, with the jobless rate climbing to its highest level in nearly four years this September. The surprise spike jolted markets into upping the odds of a 25-basis-point rate cut to 74%, a sharp jump from roughly 50% two weeks prior.
The White House confirmed on Thursday that President Donald Trump will meet Chinese leader Xi Jinping next week, coinciding with another round of high-level trade talks scheduled for this weekend during the ASEAN Summit. Any shift in China’s economic conditions could also affect the Australian dollar (AUD), given the close trade ties between China and Australia.
US Dollar rises ahead of Consumer Price Index data
- The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is gaining ground and trading around 99.00 at the time of writing. Traders would like to adopt a cautious stance before September’s US inflation data due on Friday amid the ongoing government shutdown and resulting data blackout.
- The Greenback draws support after President Trump said on Wednesday that he expects to strike several agreements with Chinese President Xi Jinping during their meeting in South Korea next week. The Trump-Xi discussions are expected to cover a wide range of issues, including US soybean exports, limiting nuclear weapons, and China’s purchases of Russian Oil.
- The US Dollar may struggle as the prolonged US government shutdown delays the key US economic data releases, including Nonfarm Payrolls (NFP), adding uncertainty for financial markets and the Federal Reserve (Fed).
- The US government shutdown has entered its 24th day, marking the second-longest federal funding lapse in history, with no end in sight. The GOP-backed stopgap bill failed to pass in the Senate for a 12th time on Wednesday evening.
- A Reuters poll suggested that 115 out of 117 economists have predicted that the Fed will reduce interest rates by 25 basis points (bps) to 3.75%-4.00% in the monetary policy announcement on October 29. For the year, 83 of 117 economists expect the US Federal Reserve to cut interest rates twice, while 32 anticipate one cut.
- The CME FedWatch Tool indicates that markets are now pricing in nearly a 98% chance of a Fed rate cut in October and a 92% possibility of another reduction in December.
- The People’s Bank of China (PBOC) decided on Monday to keep its one- and five-year Loan Prime Rates (LPRs) unchanged at 3.00% and 3.50%, respectively.
- President Trump and Australian Prime Minister Anthony Albanese signed a USD 8.5 billion critical minerals agreement at the White House on Monday, aimed at securing access to Australia’s abundant rare-earth resources amid China’s tighter export controls. Both nations also committed to investing at least USD 1 billion each over the next six months in mining and processing projects.
Australian Dollar hovers around nine-day EMA above 0.6500
AUD/USD is trading around 0.6510 on Friday. Technical analysis of a daily chart suggests a persistent bearish bias, with the pair trading within a descending channel. The 14-day RSI remains below 50, strengthening the bearish outlook.
On the downside, the AUD/USD pair may navigate the area around the four-month low of 0.6414, followed by the lower boundary of the descending channel around 0.6390. A break below this confluence support zone would strengthen the bearish bias and prompt the pair to test the five-month low of 0.6372.
The AUD/USD pair is hovering around the nine-day Exponential Moving Average (EMA) at 0.6508. A successful break above this level would improve the short-term price momentum and support the pair to test the 50-day EMA at 0.6541, aligned with the descending channel’s upper boundary.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.09% | 0.05% | 0.23% | 0.14% | 0.18% | 0.08% | 0.11% | |
| EUR | -0.09% | -0.05% | 0.12% | 0.06% | 0.09% | -0.01% | 0.03% | |
| GBP | -0.05% | 0.05% | 0.18% | 0.09% | 0.14% | 0.03% | 0.07% | |
| JPY | -0.23% | -0.12% | -0.18% | -0.09% | -0.04% | -0.15% | -0.11% | |
| CAD | -0.14% | -0.06% | -0.09% | 0.09% | 0.03% | -0.06% | -0.04% | |
| AUD | -0.18% | -0.09% | -0.14% | 0.04% | -0.03% | -0.10% | -0.07% | |
| NZD | -0.08% | 0.01% | -0.03% | 0.15% | 0.06% | 0.10% | 0.03% | |
| CHF | -0.11% | -0.03% | -0.07% | 0.11% | 0.04% | 0.07% | -0.03% |
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.