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- AUD/USD falls sharply below 0.6400 as RBA delivers less hawkish guidance
AUD/USD falls sharply below 0.6400 as RBA delivers less hawkish guidance
- AUD/USD declines by 0.82% to 0.6395 on Tuesday.
- The RBA's less hawkish interest rate guidance weighs heavily on the Aussie.
- Michele Bullock, RBA Governor, remains slightly confident that inflation will return to the bank’s 2% target.
The AUD/USD pair fell sharply below 0.6400 on Tuesday, declining by 0.82% to 0.6395 after the Reserve Bank of Australia (RBA) delivered less hawkish interest rate guidance. RBA Governor Michele Bullock expressed confidence that inflation risks had eased but not disappeared. She noted that the decision to cut interest rates in the upcoming February meeting would be data-dependent, but she was confident that wages and demand were slowing.
Investors are now waiting for US inflation data and Australian employment data, both of which could influence the Aussie’s direction in the coming days. Meanwhile, the market remains under selling pressure as expectations grow for a less dovish RBA. Analysts at ANZ and Westpac predict that the RBA could start reducing interest rates by May 2025.
Daily digest market movers: Aussie down as markets assess less hawkish RBA tone
- The Aussie remains under severe selling pressure as markets bet on a less dovish RBA stance.
- Michele Bullock, RBA Governor, expressed slight confidence in inflation returning to the bank’s target of 2%.
- When asked about whether the RBA will cut interest rates in February, Bullock said the decision would be data-dependent with a focus on slowing wages and demand.
- Before the RBA’s policy decision, analysts at ANZ and Westpac predicted that the RBA may begin reducing interest rates beginning in May 2025.
- This week, investors should brace for more volatility in the Australian Dollar, as the domestic employment data for November is scheduled to be released on Thursday.
- Meanwhile, the US Dollar rises ahead of the November US Consumer Price Index data, which will be released on Wednesday.
- This data will likely influence market speculation regarding the Federal Reserve’s interest rate decisions for the December 18 policy meeting.
- As for now according to the CME FedWatch tool, the likelihood of the Fed reducing interest rates by 25 basis points to 4.25%-4.50% is currently around 80%.
AUD/USD technical outlook: Bulls take a punch, bears take the lead
The Relative Strength Index (RSI) sits at 36 for the Aussie pair, still in the negative area and declining sharply, signaling ongoing selling pressure. The Moving Average Convergence Divergence (MACD) histogram also prints decreasing green bars, suggesting that the bearish momentum is likely to persist.
Immediate support is found at the recent low of 0.6350, while resistance lies near 0.6440. The market will remain volatile, and upcoming data releases, such as the RBA's policy decision and US CPI, could provide significant direction for the pair in the coming days.
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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