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13.08.2024, 01:54

Australian Dollar edges higher following key economic data

  • The Australian Dollar appreciates after the domestic economic data release on Tuesday.
  • Australia's Westpac Consumer Confidence increased by 2.8% in August, reversing the 1.1% decline observed in July.
  • The pressure on US Dollar is alleviated due to diminished odds of a 50-basis point rate cut by the Fed.

The Australian Dollar (AUD) extends its gains against the US Dollar (USD) following key domestic economic data released on Tuesday. The AUD/USD pair may appreciate due to the hawkish sentiment surrounding the Reserve Bank of Australia (RBA).

Australia's Westpac Consumer Confidence rose by 2.8% in August, swinging from a 1.1% fall in July. Meanwhile, the Wage Price Index remained steady with a 0.8% rise in the second quarter, slightly below the market expectation of a 0.9% increase.

The AUD/USD pair receives support as the US Dollar (USD) faces challenges from expectations for a potential interest rate cut by the Federal Reserve (Fed) in September. However, this pressure might be alleviated due to reduced chances of a 50-basis point rate cut at the Fed's September meeting.

Traders will likely focus on US producer inflation data set to be released on Tuesday and consumer inflation figures on Wednesday. Traders are looking for confirmation that price growth remains stable.

Daily Digest Market Movers: Australian Dollar advances due to a hawkish mood surrounding the RBA

  • On Monday, Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser attributed persistent inflation to weaker supply and a tight labor market. Hauser also noted that economic forecasts are surrounded by significant uncertainty.
  • The upside of the risk-sensitive AUD could be restrained due to safe-haven flows amid increased geopolitical tensions in the Middle East. On Sunday, Defense Minister Yoav Gallant informed US Defense Secretary Lloyd Austin that Iran's military activities indicate preparations for a significant strike on Israel, as reported by Axios writer Barak Ravid.
  • On Sunday, Federal Reserve Governor Michelle Bowman stated that she continues to see upside risks for inflation and ongoing strength in the labor market. This suggests that the Fed may not be prepared to cut rates at their next meeting in September, according to Bloomberg.
  • China's Consumer Price Index (CPI) rose 0.5% year-on-year in July, exceeding the expected 0.3% and previous 0.2% readings. Meanwhile, the monthly index also increased 0.5%, swinging from the previous decline of 0.2%.
  • Westpac updated its RBA forecast, now predicting the first rate cut will occur in February 2025, a shift from the previously anticipated November 2024. They also revised their terminal rate forecast to 3.35%, up from the previous 3.10%. The RBA is now viewed as more cautious, needing stronger evidence before considering rate cuts.
  • On Thursday, Kansas City Fed President Jeffrey Schmid stated that reducing monetary policy could be "appropriate" if inflation remains low. Schmid noted that the current Fed policy is "not that restrictive" and that while the Fed is close to its 2% inflation goal, it has not yet fully achieved it, per Reuters.
  • Last week, 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.
  • Last week, RBA Governor Michele Bullock expressed that the Australian central bank will not hesitate to raise rates again to combat inflation if needed. Those comments came just days after the RBA held rates steady at 4.35% for the sixth straight meeting.

Technical Analysis: Australian Dollar hovers around 0.6600 with testing a throwback support

The Australian Dollar trades around 0.6590 on Tuesday. The daily chart analysis shows that the AUD/USD pair steadies within an ascending channel, suggesting a bullish bias. However, the 14-day Relative Strength Index (RSI) consolidates below the 50 mark. A rise above this threshold could signal an increase in bullish momentum.

On the upside, the AUD/USD pair might test the upper boundary of the ascending channel at the 0.6660 level. A breakout above this level could push the pair toward its six-month high of 0.6798, reached on July 11.

In terms of support, the AUD/USD pair is testing immediate support at the throwback level of 0.6575. A drop below this level could strengthen a bearish bias, potentially driving the pair toward the lower boundary of the ascending channel near 0.6560, followed by the throwback level of 0.6470.

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 Swiss Franc.

  USD EUR GBP JPY CAD AUD NZD CHF
USD   -0.02% -0.05% 0.12% -0.00% -0.07% 0.33% 0.10%
EUR 0.02%   -0.03% 0.13% -0.01% -0.06% -0.16% 0.12%
GBP 0.05% 0.03%   0.17% 0.04% -0.03% -0.10% 0.18%
JPY -0.12% -0.13% -0.17%   -0.16% -0.19% -0.30% -0.01%
CAD 0.00% 0.01% -0.04% 0.16%   -0.06% -0.16% 0.12%
AUD 0.07% 0.06% 0.03% 0.19% 0.06%   -0.07% 0.21%
NZD -0.33% 0.16% 0.10% 0.30% 0.16% 0.07%   0.29%
CHF -0.10% -0.12% -0.18% 0.01% -0.12% -0.21% -0.29%  

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).

Interest rates FAQs

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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