Australian Dollar edges higher due to reduced bets of any imminent RBA rate cuts
- The Australian Dollar advances further due to improved risk sentiment.
- The RBA concentrates on the potential upside risks to inflation and does not anticipate any rate cuts soon.
- The US Dollar loses ground due to dovish comments from Fed officials.
The Australian Dollar (AUD) continues its winning streak for the third consecutive day against the US Dollar (USD) on Monday. The upside of the AUD/USD pair could be attributed to improved risk sentiment, along with the hawkish mood surrounding the Reserve Bank of Australia (RBA) regarding its policy outlook. Investors will be closely watching the RBA Meeting Minutes and the People’s Bank of China’s (PBoC) Interest Rate Decision on Tuesday.
RBA Governor Michele Bullock stated on Friday that the Australian central bank is focused on the potential upside risks to inflation and anticipates no rate cuts in the near term. Bullock emphasized that the RBA board believes it has struck the right balance between controlling inflation and maintaining stability in the current economic climate, according to ABC News.
The US Dollar (USD) receives downward pressure as the likelihood of an interest rate cut by the Federal Reserve (Fed) starting in September increases. Last week’s US economic data showed Retail Sales exceeding expectations, while both the Producer Price Index (PPI) and Consumer Price Index (CPI) indicated that inflation is easing. Additionally, Housing Starts in July fell to their lowest level since 2020. This week, all eyes will be on Federal Reserve Chair Jerome Powell’s upcoming speech.
Daily Digest Market Movers: Australian Dollar advances as RBA may adopt a hawkish stance
- Federal Reserve Bank of San Francisco President Mary Daly emphasized Sunday that the US central bank should take a gradual approach to reducing borrowing costs, according to the Financial Times. Daly pushed back against economists’ concerns that the US economy is on the verge of a sharp slowdown that would justify rapid interest rate cuts.
- Federal Reserve Bank of Chicago President Austan Goolsbee warned that central bank officials should be cautious about keeping a restrictive policy in place longer than necessary. While it’s uncertain whether the Fed will cut interest rates next month, failing to do so could harm the labor market, per CNBC.
- On Friday, US Housing Starts dropped by 6.8% in July to 1.238 million units, following a 1.1% increase in June. Meanwhile, the University of Michigan’s Consumer Sentiment Index rose to 67.8 in August, showing its first increase in five months, surpassing expectations and up from 66.4 in July.
- On Thursday, US Retail Sales rose by 1.0% month-over-month in July, a significant rebound from June’s 0.2% decline, according to the US Census Bureau. This figure exceeded the forecasted increase of 0.3%. Additionally, Initial Jobless Claims for the week ending August 9 came in at 227,000, better than the anticipated 235,000 and a decrease from the previous week’s 234,000.
- The People’s Bank of China (PBoC) announced on Thursday that it will renew the medium-term lending facility funds maturing on August 15th later this month. The central bank also lent CNY 577.7 billion (USD 80.9 billion) through seven-day reverse bond repurchase agreements at 1.7% in an open market operation, maintaining the previous rate, according to Reuters. Any change in the Chinese economy could impact the Australian market as both countries are close trade partners.
- US headline Consumer Price Index (CPI) rose 2.9% year-over-year in July, slightly down from the 3% increase in June and below market expectations. The Core CPI, which excludes food and energy, climbed 3.2% year-over-year, a slight decrease from the 3.3% rise in June but aligned with market forecasts.
Technical Analysis: Australian Dollar rises toward 0.6700
The Australian Dollar trades around 0.6680 on Monday. According to daily chart analysis, the AUD/USD pair is moving upwards within the ascending channel, which suggests a bullish bias. Additionally, the 14-day Relative Strength Index (RSI) is climbing toward the 70 mark, reinforcing the current bullish momentum.
On the upside, the AUD/USD pair could aim for the area near the upper boundary of the ascending channel at the 0.6740 level. A breakout above the ascending channel could push the pair toward its seven-month high of 0.6798, which was reached on July 11.
For support, the lower boundary of the ascending channel, around 0.6630, serves as the immediate support level for the AUD/USD pair, followed by the nine-day Exponential Moving Average (EMA) at 0.6618. A drop below the EMA could see the pair test the throwback level at 0.6575. If the pair falls below this support zone, it could indicate a bearish bias, potentially leading it toward the throwback level at 0.6470.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.05% | -0.05% | -0.07% | -0.13% | -0.18% | -0.33% | 0.19% | |
| EUR | 0.05% | -0.09% | 0.02% | -0.08% | -0.22% | -0.45% | 0.21% | |
| GBP | 0.05% | 0.09% | -0.06% | -0.03% | -0.15% | -0.31% | 0.29% | |
| JPY | 0.07% | -0.02% | 0.06% | -0.12% | -0.14% | -0.14% | 0.13% | |
| CAD | 0.13% | 0.08% | 0.03% | 0.12% | -0.08% | -0.12% | 0.28% | |
| AUD | 0.18% | 0.22% | 0.15% | 0.14% | 0.08% | -0.07% | 0.43% | |
| NZD | 0.33% | 0.45% | 0.31% | 0.14% | 0.12% | 0.07% | 0.54% | |
| CHF | -0.19% | -0.21% | -0.29% | -0.13% | -0.28% | -0.43% | -0.54% |
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.