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- Australian Dollar pulls back from six-month highs
Australian Dollar pulls back from six-month highs
- The Australian Dollar declines possibly due to risk aversion on Friday.
- The AUD may limit its downside due to rising expectations of the RBA maintaining a hawkish stance.
- Fed’s Goolsbee stated that the US economy appears to be on track to achieve 2% inflation.
The Australian Dollar (AUD) continues to retreat on Friday after reaching a six-month high of 0.6798 in the previous session. The AUD/USD pair found support as the US Dollar (USD) weakened following softer-than-expected US Consumer Price Index (CPI) data in June. This has increased expectations of a potential Federal Reserve (Fed) rate cut in September.
The AUD may limit its downside as speculation grows that the Reserve Bank of Australia (RBA) might delay the global rate-cutting cycle or even raise interest rates again. Persistently high inflation in Australia prompts the RBA to maintain a hawkish stance.
The US Dollar (USD) remains subdued amid lower US Treasury yields. Investors in the fed funds futures market have increased their bets on a rate cut by the US Federal Reserve starting in September. According to CME Group’s FedWatch Tool, markets are now pricing in nearly 89% odds of a rate cut at the September Fed meeting, up from 73% on Wednesday.
Daily Digest Market Movers: Australian Dollar edges lower due to risk aversion
- Federal Reserve Bank of Chicago President Austan Goolsbee said on Thursday that the US economy appears to be on track to achieve 2% inflation. This suggests Goolsbee is gaining confidence that the time for cutting interest rates may soon be approaching. He also stated "My view is, this is what the path to 2% looks like," Goolsbee said, according to Reuters.
- The US Consumer Price Index (CPI) declined by 0.1% month-over-month in June, marking its lowest level in more than three years. On a yearly basis, the headline CPI increased by 3.0% in June, down from a 3.3% rise in May and below the market consensus of 3.1%.
- The core CPI, which excludes volatile food and energy prices, rose by 3.3% year-over-year in June, compared to May's increase of 3.4% and the same expectation. Meanwhile, the core CPI increased by 0.1% month-over-month, against the expected and prior reading of 0.2%.
- Australia's Consumer Inflation Expectations for July came in at 4.3%, slightly lower than the previous reading of 4.4%.
- Federal Reserve Board Governor Lisa Cook stated on Wednesday, "My baseline forecast...is that inflation will continue to move toward target over time, without much further rise in unemployment," according to Reuters.
- On Wednesday, Fed Chair Jerome Powell emphasized the need to closely monitor the labor market, noting that it has significantly deteriorated. Additionally, Powell expressed confidence in the downward movement of inflation.
- On Tuesday, Fed Chair Jerome Powell answered questions before the Senate Banking Committee on the first day of his Congressional testimony. Powell stated, "More good data would strengthen our confidence in inflation." He emphasized that a "policy rate cut is inappropriate until the Fed gains greater confidence that inflation is headed sustainably toward 2%." He also noted that "first-quarter data did not support the greater confidence in the inflation path that the Fed needs to cut rates."
Technical Analysis: Australian Dollar hovers around 0.6750
The Australian Dollar trades around 0.6760 on Friday. The analysis of the daily chart shows that the AUD/USD pair consolidates within an ascending channel, indicating a bullish bias. Furthermore, the 14-day Relative Strength Index (RSI) remains above the 50 level, confirming the ongoing bullish momentum.
The AUD/USD pair may retest the upper boundary of the ascending channel at approximately 0.6790 and the psychological level of 0.6800.
On the downside, the AUD/USD pair may find support around the 50-day Exponential Moving Average (EMA) at 0.6698. Further support appears around the lower boundary of the ascending channel at 0.6680. A break below this level could push the pair toward the throwback support around 0.6590.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.00% | 0.06% | 0.22% | 0.00% | 0.04% | 0.15% | 0.02% | |
| EUR | -0.00% | 0.06% | 0.26% | -0.00% | 0.02% | 0.14% | -0.01% | |
| GBP | -0.06% | -0.06% | 0.18% | -0.07% | -0.05% | 0.07% | -0.08% | |
| JPY | -0.22% | -0.26% | -0.18% | -0.26% | -0.20% | -0.09% | -0.23% | |
| CAD | -0.00% | 0.00% | 0.07% | 0.26% | 0.03% | 0.14% | -0.01% | |
| AUD | -0.04% | -0.02% | 0.05% | 0.20% | -0.03% | 0.12% | -0.03% | |
| NZD | -0.15% | -0.14% | -0.07% | 0.09% | -0.14% | -0.12% | -0.14% | |
| CHF | -0.02% | 0.00% | 0.08% | 0.23% | 0.00% | 0.03% | 0.14% |
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).
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.
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