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- Australian Dollar continues to gain ground due to hawkish RBA
Australian Dollar continues to gain ground due to hawkish RBA
- The Australian Dollar remains stronger due to the hawkish sentiment surrounding the RBA’s policy outlook.
- RBA Governor Michele Bullock stated that near-term rate cuts do not align with their current strategy.
- The US Dollar struggles as recent employment data fueled higher odds of a Fed rate cut in September.
The Australian Dollar (AUD) extends its gains against the US Dollar (USD) for the second consecutive session on Wednesday. This upside is attributed to the Reserve Bank of Australia's (RBA) monetary policy decision on Tuesday. The RBA maintained the Official Cash Rate (OCR) at 4.35% for the sixth time.
RBA Governor Michele Bullock highlighted the ongoing risk that inflation might take too long to return to target and noted that interest rates might need to remain higher for an extended period. Bullock stated that a near-term reduction in the cash rate does not align with their current strategy.
However, the second-quarter inflation data has diminished expectations for another RBA rate hike. Markets estimate an RBA rate cut in November, a move anticipated much earlier than previously forecasted for April next year.
The AUD/USD pair could further strengthen as the US Dollar receives pressure since markets expect a more aggressive rate cut starting in September after the weaker US employment data in July raised the fear of a looming US recession.
Daily Digest Market Movers: Australian Dollar advances due to hawkish RBA
- The AiG Australian Industry Index showed a slight easing in contraction in July, improving to -20.7 from the previous -25.6 reading. Despite this improvement, the index has indicated contraction for the past twenty-seven months.
- On Wednesday, Treasurer Jim Chalmers contested the RBA's view that the economy remains too robust and that large government budgets are contributing to prolonged inflation, according to Macrobusiness.
- On Tuesday, RBA Governor Michele Bullock mentioned that the board had seriously considered increasing the cash rate from 4.35% to 4.6% due to ongoing concerns about excess demand in the economy. Additionally, RBA Chief Economist Sarah Hunter noted on Wednesday that the Australian economy is performing somewhat stronger than previously anticipated by the RBA.
- According to Reuters, Federal Reserve Bank of San Francisco President Mary Daly expressed increased confidence on Monday that US inflation is moving towards the Fed's 2% target. Daly noted that “risks to the Fed's mandates are becoming more balanced and that there is openness to the possibility of cutting rates in upcoming meetings.”
- Chicago Fed President Austan Goolsbee stated on Monday that the US central bank is prepared to act if economic or financial conditions worsen. Goolsbee emphasized, "We're forward-looking about it, and so if the conditions collectively start coming in like that on the through line, there’s deterioration on any of those parts, we’re going to fix it.” according to Reuters.
- The Judo Bank Australia Composite PMI dropped to 49.9 in July from 50.2 in June, falling below the neutral 50 mark for the first time since January. The Services PMI decreased to 50.4 in July from 51.8 in June. While this represents the sixth consecutive month of expansion in services activity, the growth rate was marginal and the slowest observed in this sequence.
Technical Analysis: Australian Dollar advances to near 0.6550
The Australian Dollar trades around 0.6540 on Wednesday. The daily chart analysis shows that the AUD/USD pair has broken above the descending channel, signaling a reduction in bearish momentum. Furthermore, the 14-day Relative Strength Index (RSI) is rising from the oversold 30 level, indicating a potential for further upward movement.
In terms of support, the upper boundary of the descending channel around the level of 0.6490 could act as immediate support. A return to the descending channel could reinforce the bearish bias and exert pressure on the AUD/USD pair to test the throwback support of 0.6470 level, followed by the lower boundary of the descending channel around the level of 0.6430
On the upside, the nine-day Exponential Moving Average (EMA) at 0.6540 serves as immediate resistance, with additional resistance at the 0.6575 level, where "throwback support" has turned into resistance. A breakout above this level could push the AUD/USD pair toward a six-month high of 0.6798.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.14% | -0.06% | 1.58% | -0.04% | -0.42% | -1.00% | 0.59% | |
| EUR | -0.14% | -0.20% | 1.39% | -0.18% | -0.60% | -1.14% | 0.46% | |
| GBP | 0.06% | 0.20% | 1.60% | 0.02% | -0.41% | -0.89% | 0.65% | |
| JPY | -1.58% | -1.39% | -1.60% | -1.49% | -1.90% | -2.39% | -0.86% | |
| CAD | 0.04% | 0.18% | -0.02% | 1.49% | -0.40% | -0.93% | 0.64% | |
| AUD | 0.42% | 0.60% | 0.41% | 1.90% | 0.40% | -0.48% | 1.07% | |
| NZD | 1.00% | 1.14% | 0.89% | 2.39% | 0.93% | 0.48% | 1.56% | |
| CHF | -0.59% | -0.46% | -0.65% | 0.86% | -0.64% | -1.07% | -1.56% |
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.
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