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- Australian Dollar pares gains, but downside seems limited due to risk-on mood
Australian Dollar pares gains, but downside seems limited due to risk-on mood
- The Australian Dollar declines despite a risk-on sentiment following the dovish Fed Chair Powell.
- The downside of the AUD may be restrained due to the hawkish mood surrounding the RBA.
- The US Dollar loses ground due to rising expectations of a 25 basis points rate cut in September.
The Australian Dollar (AUD) edges lower, still hovering around a seven-month high of 0.6798 on Monday. However, the AUD/USD pair gained ground due to the rising risk-on sentiment following the dovish speech from the US Federal Reserve (Fed) Chairman Jerome Powell at the Jackson Hole Symposium on Friday.
The Aussie Dollar also received support from the hawkish sentiment surrounding the Reserve Bank of Australia (RBA) regarding its policy outlook. the recent RBA Minutes showed that the board members agreed that a rate cut is unlikely soon. Additionally, RBA Governor Michele Bullock expressed that the Australian central bank will not hesitate to raise rates again to combat inflation if needed.
The US Dollar (USD) depreciates due to rising odds of a rate cut in September. According to the CME FedWatch Tool, markets are now fully anticipating at least a 25 basis point (bps) rate cut by the Federal Reserve at its September meeting.
Fed Chair Jerome Powell stated at the Jackson Hole Symposium "The time has come for policy to adjust." However, Powell did not specify when rate cuts would begin or their potential size.
Daily Digest Market Movers: Australian Dollar edges lower despite the hawkish RBA
- Philadelphia Fed President Patrick Harker stated on Friday that the US central bank's approach to interest rate adjustments needs to be "methodical," signaling that policymakers are planning a series of rate cuts throughout the remainder of 2024 as the US central bank prepares for a dovish shift, according to Bloomberg.
- Chicago President Austan Goolsbee noted on Friday that the Fed has seen broad success in achieving its goals and that inflation should continue to head toward the US central bank's target range. Policy is now at its tightest point of the entire hike cycle. Everything we wanted to happen to get rates down, has happened, per Reuters.
- The US Composite PMI dipped slightly to 54.1 in August, a four-month low, down from 54.3 in July, yet remained above market expectations of 53.5. This suggests that US business activity continues to expand, marking 19 straight months of growth.
- Australia's Judo Bank Composite Purchasing Managers Index (PMI) rose to 51.4 in August, up from 49.9 in July. This increase marks the fastest expansion in three months, driven by a stronger performance in the services sector, despite a more pronounced contraction in manufacturing production.
- FOMC Minutes for July’s policy meeting indicated that most Fed officials agreed last month that they would likely cut their benchmark interest rate at the upcoming meeting in September as long as inflation continued to cool.
- On Tuesday, the RBA Minutes suggested that the board members had considered a rate hike earlier this month before ultimately deciding that maintaining current rates would better balance the risks. Additionally, RBA members agreed that a rate cut is unlikely soon.
Technical Analysis: Australian Dollar rises to seven-month highs around 0.6800
The Australian Dollar trades around 0.6790 on Monday. Daily chart analysis shows the AUD/USD pair has returned to the ascending channel, suggesting reinforcing a bullish bias. However, the 14-day Relative Strength Index (RSI) reaches near the 70 mark, supporting the ongoing bullish momentum.
In terms of resistance, the AUD/USD pair tests the seven-month high of 0.6798. A break above this level could lead the pair to explore the region around the upper boundary of the ascending channel at the 0.6910 level.
On the downside, the AUD/USD pair may find support around the lower boundary of the ascending channel at the 0.6770 level, followed by the nine-day Exponential Moving Average (EMA) at the 0.6718 level. A break below the nine-day EMA could weaken the bullish bias and put downward pressure on the pair to navigate the region around the throwback level at 0.6575, followed by another throwback level at 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 weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.00% | 0.04% | -0.33% | -0.03% | 0.11% | 0.00% | -0.15% | |
| EUR | 0.00% | -0.02% | -0.32% | -0.01% | 0.02% | 0.02% | -0.12% | |
| GBP | -0.04% | 0.02% | -0.42% | -0.06% | 0.03% | -0.03% | -0.17% | |
| JPY | 0.33% | 0.32% | 0.42% | 0.33% | 0.53% | 0.57% | 0.29% | |
| CAD | 0.03% | 0.01% | 0.06% | -0.33% | 0.12% | 0.07% | -0.12% | |
| AUD | -0.11% | -0.02% | -0.03% | -0.53% | -0.12% | -0.00% | -0.15% | |
| NZD | -0.01% | -0.02% | 0.03% | -0.57% | -0.07% | 0.00% | -0.15% | |
| CHF | 0.15% | 0.12% | 0.17% | -0.29% | 0.12% | 0.15% | 0.15% |
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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