Australian Dollar consolidates below a key level as US Dollar rebounds
- Australian Dollar moves downward on the rising US Dollar.
- Australia’s central bank is expected to raise policy rates; contributing support for the AUD.
- Chinese report revealed a decline in both manufacturing and non-manufacturing PMI for September.
- Downbeat US Treasury yields could limit the advance of the Greenback.
The Australian Dollar (AUD) halts a three-day winning streak on Tuesday. The rebound in US Dollar (USD) is weighing on the AUD/USD pair. However, the positive Australian Retail Sales contributed support for the Aussie pair ahead of the policy decision from the US Federal Reserve (Fed) on Wednesday. Moreover, the Reserve Bank of Australia (RBA) is set to release its policy decision on November 7.
Australia’s central bank is expected to raise interest rates by 25 basis points in the upcoming meeting on the back of elevated inflation. In the week before, Australia’s Consumer Price Index (CPI) revealed an expansion in the third quarter of 2023, surpassing the increase seen in the second quarter. Furthermore, the seasonally adjusted Retail Sales (Month-on-Month) pleasantly surprised the market, posting a notably higher reading in September.
The Tuesday Chinese report revealed a decline in both manufacturing and non-manufacturing Manufacturing Purchasing Managers’ Index (PMI) for September, heightening concerns about the sluggish economic conditions in the world’s second-largest economy. This development raises the possibility of an impact on the Australian Dollar, given Australia’s status as the largest trading partner of China.
The US Dollar Index (DXY) retraces recent losses before the US Fed policy decision. The moderate economic data from the United States (US) released on Friday failed to provide any support for the Greenback as the market participants expect the Fed to maintain its interest rates at 5.5% in the upcoming meeting.
However, the December’s meeting will be data-driven. As per the CME Fedwatch tools, Markets factor in a 23% probability of the Fed hiking 25 basis points (bps) in the December meeting.
Daily Digest Market Movers: Australian Dollar consolidates post recent gains ahead of Fed policy decision
Australia’s Retail Sales (Month-on-Month) soared to 0.9% in September, surpassing market expectations of 0.3% and the previous figure of 0.2%.
Australia’s Producer Price Index (PPI) exhibited a modest easing, dropping to 3.8% on a yearly basis in Q3, compared to the previous quarter’s 3.9%. On a quarterly basis, the nation’s PPI experienced a significant rise to 1.8%, up from the previous reading of 0.5%.
Australian Consumer Price Index (CPI) for the third quarter of 2023 reached 1.2%, exceeding both the 0.8% uptick in the previous quarter and the market consensus of 1.1% for the same period.
The Reserve Bank of Australia stated heightened concern about the inflation impact stemming from supply shocks. Governor of the Reserve Bank of Australia, Michele Bullock stated that if inflation persists above projections, the RBA will take responsive policy measures. There is an observable deceleration in demand, and per capita consumption is on the decline.
China’s NBS Manufacturing Purchasing Managers’ Index (PMI) took an unexpected turn in September, contracting to 49.5, down from the 50.2 expansion observed in July and falling short of the market consensus of 50.2. Additionally, the NBS Services PMI also experienced a decline, dropping to 50.6 in September compared to the anticipated figure of 51.8 and the previous reading of 51.7.
According to reports, there’s a tentative agreement between the US and China for a meeting between Presidents Joe Biden and Xi Jinping in November. This comes after months of strategic diplomatic efforts to mend relations.
US Core Personal Consumption Expenditures Price Index (YoY) saw a slight decline to 3.7% from the previous reading of 3.8%. However, the monthly index showed an increase to 0.3%, in line with expectations and up from 0.1% previously.
The University of Michigan Consumer Index surpassed expectations in October, reporting a figure of 63.8, which was expected to remain consistent at 63.0.
The market participants await the Fed Interest Rate Decision on Wednesday, expecting the interest rates to be kept at 5.5% in the upcoming meeting on Wednesday.
Investor attention will be directed towards key indicators such as the US ADP Employment Change, and ISM Manufacturing PMI for October.
Technical Analysis: Australian Dollar hovers around the key support level at 0.6350
The Australian Dollar consolidates near the significant level at 0.6350. The yearly low at 0.6270 may serve as a key support, aligned with the major level around 0.6250. Looking upward, the pivotal resistance at 0.6400 is noteworthy, accompanied by the 50-day Exponential Moving Average (EMA) at 0.6405. A successful breach above this resistance could propel the currency towards the 23.6% Fibonacci retracement level at 0.6417.
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 Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.17% | 0.15% | 0.12% | 0.34% | 0.70% | 0.19% | -0.01% | |
| EUR | -0.18% | -0.02% | -0.03% | 0.16% | 0.54% | 0.02% | -0.18% | |
| GBP | -0.16% | 0.00% | -0.02% | 0.17% | 0.53% | 0.04% | -0.17% | |
| CAD | -0.13% | 0.07% | 0.03% | 0.23% | 0.58% | 0.08% | -0.13% | |
| AUD | -0.34% | -0.16% | -0.17% | -0.18% | 0.36% | -0.15% | -0.35% | |
| JPY | -0.69% | -0.52% | -0.54% | -0.60% | -0.36% | -0.50% | -0.71% | |
| NZD | -0.20% | -0.01% | -0.04% | -0.04% | 0.13% | 0.50% | -0.22% | |
| CHF | 0.01% | 0.18% | 0.17% | 0.13% | 0.34% | 0.71% | 0.21% |
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.