Australian Dollar aims to recover from a three-day losing streak ahead of RBA minutes

Australian Dollar retraces recent losses post-release of the RBA Meeting Minutes on Tuesday.
RBA is exploring the possibility of introducing a central bank digital currency to save costs of billions of dollars.
Investors seem to price in the possibility of another Fed rate hike following a slew of robust US data.

The Australian Dollar (AUD) kicks off the week by recovering from the three-day losing streak, trading higher against the US Dollar on Monday. The pair faced challenges possibly due to the shift in discussions about the trajectory of the US Federal Reserve's (Fed) monetary policy. Investors are expected to focus on the Reserve Bank of Australia’s (RBA) Meeting Minutes on Tuesday and employment data later in the week.

Australia’s central bank is exploring possibly introducing a central bank digital currency (CBDC). Brad Jones, Assistant Governor (Financial System) at the RBA, discussed the tokenization of assets and money in the digital era at The Australian Financial Review Cryptocurrency Summit. Governor Jones highlighted the potential for tokenized money to bring about significant cost savings, potentially amounting to billions of dollars, in the domestic financial markets.

The National Bureau of Statistics of China reported on Friday that Chinese inflation experienced a decrease in September. This development could exert pressure on the Australian Dollar (AUD). The Chinese data indicates ongoing economic challenges despite the recent government stimulus plan aimed at supporting the nation in achieving its 5% growth target.

The US Dollar Index (DXY) gained upward momentum after a release of robust US data during the previous week, with US inflation surpassing expectations and initial jobless claims coming in lower than anticipated. However, the preliminary US Michigan Consumer Sentiment Index was eased in October.

Investors seem to factor in the possibility of another Federal Reserve’s (Fed) rate hike. Moreover, the recovery in US Treasury yields from the recent losses could provide support in underpinning the US Dollar (USD). Additionally, the Greenback remains to benefit from the safe-haven flow amid the rising geopolitical tension between Israel and Palestine.

Daily Digest Market Movers: Australian Dollar attempts to retrace a three-day losing streak

Reserve Bank of Australia is exploring possibly introducing a central bank digital currency (CBDC).
On Thursday, Australian Consumer Inflation Expectations for October were reported at 4.8%, reflecting a slight increase from the September figure of 4.6%. The rebound in inflation observed in August, primarily influenced by elevated oil prices, raises the likelihood of another interest rate hike by the RBA.
According to the National Bureau of Statistics of China, the Chinese Consumer Price Index (CPI) for September registered at 0% (YoY), a decline from the previous reading of 0.1%. This figure fell short of the market consensus, which anticipated a 0.2% increase. Additionally, the Producer Price Index dropped to 2.5% from a 3% decline in August, missing the expectation of a 2.4% downturn.
The ongoing conflict in the Middle East introduces an additional layer of complexity to the situation. This geopolitical factor could potentially prompt the RBA to implement a 25 basis points (bps) interest rate hike, reaching 4.35% by the end of the year.
According to an undisclosed source to Reuters, US officials and Israel have engaged in discussions about the possibility of a visit by US President Joe Biden to Israel. The invitation for the visit reportedly came from Israeli Prime Minister Benjamin Netanyahu.
The US Bureau of Labor Statistics (BLS) disclosed that the Consumer Price Index in the US surpassed forecasts in September. The annual basis figures expanded at a consistent rate of 3.7%, slightly exceeding estimates of 3.6%.
US Initial Jobless Claims for the week ending on October 6 showed a slight easing, despite an increase of 209K, which was slightly below the forecast of 210K.
On Friday, the preliminary US Michigan Consumer Sentiment Index for October showed a decline to 63.0 from the previous reading of 68.1, falling short of the expected figure of 67.4.
The yields on US Treasury bonds recovers on Monday, with the 10-year US Treasury bond yield standing at 4.66%, up by 1.04%.
Market participants will likely monitor the US Retail Sales on Tuesday, with the figure expected to rise 0.2%. On the Australian docket, attention will be on the Reserve Bank of Australia (RBA) meeting minutes and employment data scheduled for release in the coming week.

Technical Analysis: Australian Dollar consolidates above the psychological support at the 0.6300 level

The Australian Dollar trades around 0.6310, in proximity to a significant support level at 0.6300, which aligns with the monthly low at 0.6285. On the upside, a key resistance is observed at the 44-day Exponential Moving Average (EMA) around the 0.6427 level, coinciding with the 23.6% Fibonacci retracement level at 0.6429. A decisive breakthrough of this resistance could open the path for upward momentum, with a potential target set at the psychological milestone of 0.6500. These technical levels guide traders to assess potential price movements in the Aussie Dollar.

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 Canadian Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.02%	0.00%	0.01%	-0.09%	-0.04%	-0.14%	-0.05%
EUR	0.03%		0.04%	0.04%	-0.06%	-0.01%	-0.10%	-0.05%
GBP	0.00%	-0.03%		0.02%	-0.09%	-0.04%	-0.14%	-0.06%
CAD	-0.02%	-0.04%	0.01%		-0.10%	-0.06%	-0.16%	-0.07%
AUD	0.09%	0.06%	0.09%	0.10%		0.05%	-0.05%	0.01%
JPY	0.05%	0.04%	0.04%	0.04%	-0.05%		-0.12%	-0.01%
NZD	0.14%	0.12%	0.13%	0.15%	0.05%	0.10%		0.06%
CHF	0.05%	0.05%	0.06%	0.07%	-0.01%	0.03%	-0.08%

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).

Australian Dollar FAQs

What key factors drive the Australian Dollar?

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.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

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.

How does the health of the Chinese Economy impact the Australian Dollar?

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.

How does the price of Iron Ore impact the Australian Dollar?

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.

How does the Trade Balance impact the Australian Dollar?

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.