Australian Dollar appreciates due to a hawkish mood surrounding the RBA policy outlook

The Australian Dollar rises as the RBA intends to maintain a restrictive monetary policy.
The RBA Meeting Minutes indicated that the board remains vigilant about the potential for further inflation.
The US Dollar may appreciate due to cautious remarks from Fed officials.

The Australian Dollar (AUD) retraces its recent losses on Thursday, buoyed by a hawkish outlook from the Reserve Bank of Australia (RBA) concerning interest rates. Despite this, the AUD/USD pair could still face downward pressure as the US Dollar (USD) might strengthen due to safe-haven flows amid the escalating Russia-Ukraine conflict.

The Reserve Bank of Australia's November Meeting Minutes indicated that the central bank’s board remains vigilant about the potential for further inflation, stressing the importance of maintaining a restrictive monetary policy. Although board members noted no "immediate need" to alter the cash rate, they kept options open for future adjustments, emphasizing that all possibilities remain on the table.

The downside risk for the US Dollar may be constrained due to the cautious remarks from Federal Reserve (Fed) officials. Additionally, market expectations suggest that the incoming Donald Trump administration will spur inflation, thereby slowing the rate cut trajectory from the Fed, lending support to the Greenback.

Traders will be closely monitoring the US weekly Initial Jobless Claims, the Philadelphia Fed Manufacturing Index, and Existing Home Sales, all of which are scheduled for release later on Thursday.

Daily Digest Market Movers: Australian Dollar recovers recent losses amid hawkish RBA

Federal Reserve Bank of Boston President Susan Collins stated on Wednesday that while more interest-rate cuts are necessary, policymakers should proceed cautiously to avoid moving too quickly or too slowly, according to Bloomberg.
On Wednesday, Fed Governor Michelle Bowman highlighted that inflation remains elevated over the past few months, and stressed the need for the Fed to proceed cautiously with rate cuts.
Australian Treasurer Jim Chalmers stated that "tumbling iron ore prices and a softening labor market have impacted government revenue." following his Ministerial Statement on the economy on Wednesday. Chalmers outlined Australia's tough fiscal outlook, citing the weakening of China, a key trading partner, and the slowdown in the job market as contributing factors.
Kansas City Fed President Jeffrey Schmid stated on Tuesday that he expects both inflation and employment to move closer to the Fed's targets. Schmid explained that rate cuts signal the Fed's confidence in inflation trending toward its 2% goal. He also noted that while large fiscal deficits won't necessarily drive inflation, the Fed may need to counteract potential pressures with higher interest rates.
According to a Reuters report late Tuesday, Ukraine deployed US-supplied ATACMS missiles to strike Russian territory for the first time, signaling a significant escalation on the 1,000th day of the conflict. However, market concerns eased slightly after Russian Foreign Minister Sergei Lavrov stated that the government would "do everything possible" to prevent the outbreak of nuclear war.
On Tuesday, an official from China’s National Development and Reform Commission (NDRC) stated that the country has "ample policy room and tools to support economic recovery." The official expressed confidence in China's economic trajectory, anticipating the recovery momentum will persist through November and December. Any change in the Chinese economy could impact the Australian markets as both nations are close trade partners.
Fed Chair Jerome Powell downplayed the likelihood of imminent rate cuts, highlighting the economy's resilience, robust labor market, and persistent inflationary pressures. Powell remarked, "The economy is not sending any signals that we need to hurry to lower rates."
Chicago Fed President Austan Goolsbee stated on Friday that markets often overreact to changes in interest rates. Goolsbee emphasized the importance of the Fed adopting a cautious, gradual approach in moving toward the neutral rate.
Boston Fed President Susan Collins tempered expectations for continued rate cuts in the near term while maintaining market confidence in a potential rate reduction in December. Collins stated, "I don't see a big urgency to lower rates, but I want to preserve a healthy economy."

Technical Analysis: Australian Dollar remains above 0.6500 near nine-day EMA

The AUD/USD pair trades near 0.6510 on Thursday. Technical analysis of the daily chart indicates a continued decline within a descending channel pattern, signaling a bearish outlook. The 14-day Relative Strength Index (RSI) is below 50, further supporting the prevailing bearish sentiment.

For support, the AUD/USD pair may approach the lower boundary of the descending channel at 0.6370, followed by its yearly low of 0.6348, recorded on August 5.

On the upside, the AUD/USD pair tests the nine-day EMA at 0.6519, followed by the 14-day EMA at 0.6536. Surpassing these levels could weaken the bearish bias and set the stage for a rally toward the four-week high of 0.6687.

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 US Dollar.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.09%	-0.08%	-0.29%	-0.08%	-0.23%	-0.15%	-0.16%
EUR	0.09%		0.00%	-0.16%	0.04%	-0.13%	-0.07%	-0.07%
GBP	0.08%	-0.01%		-0.16%	-0.01%	-0.15%	-0.07%	-0.08%
JPY	0.29%	0.16%	0.16%		0.20%	0.06%	0.10%	0.12%
CAD	0.08%	-0.04%	0.00%	-0.20%		-0.13%	-0.06%	-0.08%
AUD	0.23%	0.13%	0.15%	-0.06%	0.13%		0.07%	0.06%
NZD	0.15%	0.07%	0.07%	-0.10%	0.06%	-0.07%		-0.01%
CHF	0.16%	0.07%	0.08%	-0.12%	0.08%	-0.06%	0.00%

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

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.