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- Australian Dollar appreciates amid expectations of the RBA delaying rate cuts
Australian Dollar appreciates amid expectations of the RBA delaying rate cuts
- The Australian Dollar gains ground due to the hawkish sentiment surrounding the RBA.
- Australia's Consumer Inflation Expectations for July posted a reading of 4.3%, slightly lower than June’s 4.4% reading.
- The US Dollar declines due to the lower Treasury yields ahead of Consumer Price Index data for June.
The Australian Dollar (AUD) holds gains on Thursday after the release of soft Consumer Inflation Expectations for July by the Melbourne Institute, which presents consumer expectations for inflation over the next 12 months.
The AUD/USD pair receives support from increasing expectations that the Reserve Bank of Australia (RBA) may delay in the global rate-cutting cycle or possibly raise interest rates again. Recent data showed a decline in Australian consumer confidence in July, contrasted by a surge in business sentiment, reaching a 17-month high in June.
The US Dollar (USD) loses ground, potentially influenced by the lower US Treasury yields. Traders are looking to the upcoming US Consumer Price Index (CPI) data for June, due on Thursday, for further insights into the Federal Reserve’s (Fed) monetary policy stance.
Market forecasts generally predict that the annualized US core CPI for the year ending in June will remain steady at 3.4%. Meanwhile, headline CPI inflation is expected to increase to 0.1% month-over-month in June, compared to the previous flat reading of 0.0%.
Daily Digest Market Movers: Australian Dollar improves due to hawkish sentiment surrounding the RBA
- 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.
- Consumer Price Index (CPI) in China, a close trade partner of Australia, rose at an annual rate of 0.2% in June, down from a 0.3% rise in May. The market had forecasted a 0.4% increase for the period. Monthly, Chinese CPI inflation declined by 0.2% in June, compared to a 0.1% decline in May, which came in below the expected decline of 0.1%.
- 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."
- On Tuesday, Australia's Westpac Consumer Confidence dropped by 1.1% in July, reversing the 1.7% increase seen in June. This marks the fifth decline in 2024, driven by ongoing worries about high inflation, elevated interest rates, and a sluggish economy.
Technical Analysis: Australian Dollar maintains position around 0.6750
The Australian Dollar trades around 0.6750 on Thursday. The Analysis of the daily chart shows that the AUD/USD pair consolidates within an ascending channel, indicating a bullish bias. Additionally, the 14-day Relative Strength Index (RSI) remains above the 50 level, confirming the bullish momentum.
The AUD/USD pair may test the upper boundary of the ascending channel at approximately 0.6785. If it breaks through this level, the pair could target the psychological level of 0.6800.
On the downside, the AUD/USD pair may find support around the lower boundary of the ascending channel at 0.6675, with additional support near the 50-day Exponential Moving Average (EMA) at 0.6646. 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 strongest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.03% | -0.03% | -0.03% | 0.03% | -0.05% | -0.08% | -0.07% | |
| EUR | 0.03% | 0.01% | 0.02% | 0.06% | -0.00% | -0.03% | -0.03% | |
| GBP | 0.03% | -0.01% | -0.02% | 0.05% | -0.02% | -0.05% | -0.02% | |
| JPY | 0.03% | -0.02% | 0.02% | 0.04% | -0.02% | -0.09% | -0.03% | |
| CAD | -0.03% | -0.06% | -0.05% | -0.04% | -0.09% | -0.10% | -0.08% | |
| AUD | 0.05% | 0.00% | 0.02% | 0.02% | 0.09% | -0.04% | -0.01% | |
| NZD | 0.08% | 0.03% | 0.05% | 0.09% | 0.10% | 0.04% | 0.03% | |
| CHF | 0.07% | 0.03% | 0.02% | 0.03% | 0.08% | 0.00% | -0.03% |
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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