- The Australian Dollar gains ground due to hawkish sentiment surrounding the RBA.
- RBA Governor Michele Bullock does not anticipate rate cuts in the near term.
- The US Dollar depreciates as traders fully price in a 25 basis point rate cut by the Fed in September.
The Australian Dollar (AUD) extends its gains for the second consecutive day against the US Dollar (USD) on Friday. The hawkish remarks from the Reserve Bank of Australia (RBA) Governor Michele Bullock fuel the upside of the Aussie Dollar and underpin the AUD/USD pair.
RBA Governor Bullock stated on Friday that the Australian central bank remains focused on the potential upside risks to inflation and does not anticipate rate cuts in the near term. The board believes it has struck the right balance between controlling inflation and maintaining stability in the current economic climate, per ABC News.
Read the full article: RBA’s Bullock: Inflation remains too high
The US Dollar edges lower as traders fully price in a 25 basis point rate reduction by the US Federal Reserve for September. However, a 50 basis point cut remains a possibility, with the CME FedWatch tool indicating a 26% chance of such a move. Traders will also be observing the preliminary US Michigan Consumer Sentiment Index for August, which is set to be released on Friday.
Daily Digest Market Movers: Australian Dollar edges higher due to hawkish RBA
- On Thursday, US Retail Sales rose by 1.0% month-over-month in July, a significant rebound from June’s 0.2% decline, according to the US Census Bureau. This figure exceeded the forecasted increase of 0.3%. Additionally, Initial Jobless Claims for the week ending August 9 came in at 227,000, better than the anticipated 235,000 and a decrease from the previous week’s 234,000.
- The People’s Bank of China (PBoC) announced on Thursday that it will renew the medium-term lending facility funds maturing on August 15th later this month. The central bank also lent CNY 577.7 billion (USD 80.9 billion) through seven-day reverse bond repurchase agreements at 1.7% in an open market operation, maintaining the previous rate, according to Reuters. Any change in the Chinese economy could impact the Australian market as both countries are close trade partners.
- China’s Retail Sales grew by 2.7% year-on-year in July, exceeding market forecasts of 2.6% and accelerating from June’s 17-month low of 2.0%. Meanwhile, Industrial Production increased by 5.1% year-on-year, falling short of the 5.2% expected and easing from the 5.3% growth seen in the previous month. This marks the third consecutive month of moderation in industrial output.
- Australian Employment Change is reported at 58.2K for July, surpassing the expected 20.0K and the previous reading of 52.3K. However, the Unemployment Rate increased to 4.2%, exceeding the market expectation of remaining steady at 4.1%. Additionally, Consumer Inflation Expectations for August rose to 4.5%, up from the prior reading of 4.3%.
- Federal Reserve Bank of Chicago President Austan Goolsbee expressed growing concern on Wednesday about the labor market rather than inflation, noting recent improvements in price pressures alongside weak jobs data. Goolsbee added that the extent of rate cuts will be determined by the prevailing economic conditions, per Bloomberg.
- US headline Consumer Price Index (CPI) rose 2.9% year-over-year in July, slightly down from the 3% increase in June and below market expectations. The Core CPI, which excludes food and energy, climbed 3.2% year-over-year, a slight decrease from the 3.3% rise in June but aligned with market forecasts.
- On Tuesday, Atlanta Fed President Raphael Bostic stated that recent economic data has increased his confidence that the Fed can achieve its 2% inflation target. However, Bostic indicated that additional evidence is required before he would support a reduction in interest rates, according to Reuters.
Technical Analysis: Australian Dollar moves above 0.6600
The Australian Dollar trades around 0.6620 on Friday. According to daily chart analysis, the AUD/USD pair is testing the lower boundary of an ascending channel. A break below this level could indicate a weakening of the bullish trend. Additionally, the 14-day Relative Strength Index (RSI) is slightly above the 50 mark, supporting the current bullish momentum.
In terms of support, the lower boundary of the ascending channel, around 0.6610, is the immediate support level for the AUD/USD pair. A break below this could lead the pair to test the nine-day Exponential Moving Average (EMA) at 0.6593, followed by the throwback level at 0.6575. Should the pair fall below this support zone, it could signal a bearish outlook, potentially pushing it toward the throwback level at 0.6470.
On the upside, the AUD/USD pair might target the area near the upper boundary of the ascending channel at the 0.6720 level. A breakout above this could propel the pair toward its six-month high of 0.6798, recorded on July 11.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.04% | -0.09% | -0.18% | -0.02% | -0.15% | -0.26% | -0.12% | |
| EUR | 0.04% | -0.06% | -0.16% | -0.00% | -0.15% | -0.36% | -0.08% | |
| GBP | 0.09% | 0.06% | -0.10% | 0.07% | -0.08% | -0.29% | -0.03% | |
| JPY | 0.18% | 0.16% | 0.10% | 0.22% | 0.03% | -0.19% | 0.05% | |
| CAD | 0.02% | 0.00% | -0.07% | -0.22% | -0.15% | -0.39% | -0.12% | |
| AUD | 0.15% | 0.15% | 0.08% | -0.03% | 0.15% | -0.22% | 0.03% | |
| NZD | 0.26% | 0.36% | 0.29% | 0.19% | 0.39% | 0.22% | 0.28% | |
| CHF | 0.12% | 0.08% | 0.03% | -0.05% | 0.12% | -0.03% | -0.28% |
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.