Australian Dollar stretches higher after RBA meeting minutes, awaits US housing data
- Australian Dollar remains bullish after the RBA meeting minutes release.
- Australian policymakers suggest further tightening will depend on data and assessment of risks.
- New York Fed President John Williams dismissed speculation regarding a potential rate cut in March.
The Australian Dollar (AUD) moves on an upward trajectory for the sixth successive session on Tuesday as the US Dollar remains in negative territory. The AUD/USD pair got a boost as traders anticipated rate cuts from the Federal Reserve (Fed), putting pressure on the US Dollar (USD). Additionally, Australia’s robust employment results and rising incomes are signs of economic resilience, providing strong support for the Australian Dollar.
Australia’s Meeting Minutes are released by the Reserve Bank of Australia (RBA). The board observed “encouraging signs” of progress regarding inflation, emphasizing the need for this positive trend to persist. The decision on whether further tightening is necessary will be based on data and a thorough assessment of risks.
RBA board expressed the importance of waiting for additional data to evaluate the balance of risks, considering the potential for inflation to remain elevated for an extended period balanced against the risk of a more pronounced slowdown in demand. Additionally, the board took note that the RBA staff forecast anticipated inflation returning to the upper end of the band by the end of 2025 rather than the midpoint.
The US Dollar Index (DXY) holds steady as it awaits fresh developments from the United States (US) economy. The DXY could find support in improved yields on US Treasury bonds. Investors will focus on Building Permits and Housing Starts from the United States (US) on Tuesday. Furthermore, on Wednesday, the People’s Bank of China (PBoC) is scheduled to announce its Interest Rate Decision.
Federal Reserve (Fed) Bank of New York President John Williams offered a counterpoint in contrast to speculation about a March rate cut from the Federal Open Market Committee (FOMC). Moreover, San Francisco Fed President Mary Daly stated that even with three rate cuts next year, the Fed would maintain a relatively restrictive stance. Speculating on which meetings might see a change in the policy stance for the upcoming year is premature. According to Daly, there is ongoing work, and the focus extends beyond just bringing inflation down to 2%.
Daily Digest Market Movers: Australian Dollar remains hawkish amid a subdued US Dollar
- The preliminary Judo Bank Composite PMI improved to 47.4 from the previous reading 46.2. The Manufacturing PMI for the same period registered 47.8, a slight increase from the prior figure of 47.7. Additionally, the Services PMI grew to 47.6 compared to the previous reading of 46.0.
- Australia’s Consumer Inflation Expectations for December eased at 4.5% against the previous figures of 4.9%.
- Australian Trade Minister Don Farrell stated that he believes China will eliminate punitive tariffs on Australian wine. China has already lifted trade restrictions on most Australian exports, signaling a gradual improvement in the relations between the two countries.
- Chicago Fed President Austan Goolsbee didn’t dismiss the possibility of a rate cut in the Fed’s March meeting. Furthermore, Atlanta Fed President Raphael Bostic hinted at a potential interest rate cut in the third quarter of 2024, contingent on inflation following the anticipated trajectory.
- Federal Reserve (Fed) maintained interest rates at 5.5% in its December policy meeting as expected. Markets are now projecting three rate cuts for 2024.
- US S&P Global Services PMI rose to 51.3 from 50.8 prior. While Manufacturing PMI declined to 48.2 from 49.4.
Technical Analysis: Australian Dollar maintains its position above 0.6700
The Australian Dollar trades higher around 0.6710 on Tuesday, maintaining its upward momentum after reaching a new five-month high at 0.6735 on Monday. The prevailing bullish sentiment suggests a potential for the AUD/USD pair to surpass the recent peak and approach the key resistance level at 0.6750. On the downside, significant support is situated at 0.6700. A breach below this level might lead the AUD/USD pair towards the critical zone at 0.6650, followed by the 23.6% Fibonacci retracement at 0.6622. Subsequently, the 21-day Exponential Moving Average (EMA) at 0.6609 could act as a support before reaching the psychological level at 0.6600.
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 Euro.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.04% | -0.04% | -0.06% | -0.32% | -0.06% | -0.20% | 0.00% | |
| EUR | -0.04% | -0.06% | -0.08% | -0.35% | -0.10% | -0.22% | -0.02% | |
| GBP | 0.04% | 0.07% | -0.02% | -0.28% | -0.02% | -0.17% | 0.05% | |
| CAD | 0.06% | 0.08% | 0.02% | -0.27% | -0.01% | -0.14% | 0.06% | |
| AUD | 0.32% | 0.36% | 0.29% | 0.26% | 0.25% | 0.12% | 0.32% | |
| JPY | 0.06% | 0.10% | 0.02% | 0.01% | -0.26% | -0.13% | 0.06% | |
| NZD | 0.21% | 0.23% | 0.15% | 0.14% | -0.12% | 0.14% | 0.20% | |
| CHF | 0.00% | 0.02% | -0.03% | -0.05% | -0.32% | -0.07% | -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 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.