Australian Dollar consolidates, US Dollar struggles on expectation of Fed rate cut in June


  • Australian Dollar moves back to the positive zone amid tepid US Dollar.
  • Australian equity market experiences gains; supporting the Aussie Dollar.
  • Bloomberg survey of economists finds the consensus expectation is for the PBoC to implement two additional RRR cuts in 2024.
  • Greenback struggles with the expectation of the Fed initiating a rate cut cycle starting in June.

The Australian Dollar (AUD) moves in an upward direction on Tuesday. However, the decline in the US Dollar (USD) helped to support the AUD/USD pair during the early Asian hours. The AUD faced slight downward pressure following the release of Australia's Westpac Consumer Confidence data, which dipped 1.8% to 84.4 in March 2024 from February's 86.0, easing from 20-month highs.

The Australian equity market found support from expectations of a rate cut, driven by a decline in the Aussie consumer confidence, contributing to the strength of the Australian Dollar. Despite modest weakness on Wall Street overnight, the ASX 200 Index extended its winning streak. Investors are anticipated to closely monitor the release of the Australian monthly Consumer Price Index (CPI) data on Wednesday.

The US Dollar Index (DXY) experienced a second consecutive day of losses, largely attributed to declining US Treasury yields. Market sentiment is leaning towards expectations of the Federal Reserve (Fed) commencing an easing cycle, with speculations pointing towards a potential start in June.

Daily Digest Market Movers: Australian Dollar gains ground on stronger ASX 200

  • Australia's government has pledged to support a minimum wage increase aligned with inflation this year, recognizing the ongoing challenges faced by low-income families amid rising living costs.
  • According to a Bloomberg survey of economists, the consensus expectation is for the People's Bank of China (PBoC) to implement two additional Reserve Requirement Ratio (RRR) cuts in 2024, amounting to a total reduction of 50 basis points.
  • Chinese President Xi Jinping is set to meet with American business leaders in Beijing on Wednesday, following up on his November dinner with US investors in San Francisco. The meeting was initiated by Evan Greenberg, the chief executive of US insurer Chubb. Among the attendees are Stephen Orlins, president of the National Committee on US-China Relations, and Craig Allen, president of the US-China Business Council.
  • Atlanta Fed President Raphael Bostic expressed his expectation for just one rate cut this year, cautioning that reducing rates prematurely could lead to greater disruption.
  • Chicago Fed President Austan Goolsbee aligns with the majority of the board, anticipating three cuts. However, Goolsbee mentioned the necessity for further evidence indicating a decrease in inflation before proceeding with rate cuts.
  • US New Home Sales Change declined by 0.3% month-over-month, compared to the previous rise of 1.7%.
  • US New Home Sales (MoM) came in at 0.662M, which is below the expected 0.680M in February and 0.664M prior.
  • S&P Global Services PMI showed a slight decrease in March, dropping to 51.7 from 52.3. The expected reading was 52.0. Manufacturing PMI rose to 52.5 against the expected 51.7 and 52.2 prior. Composite PMI showed a slight dip to 52.2 from 52.5 prior.
  • Initial Jobless Claims for the week ending on March 15 came in at 210K, below the 215K expected and 212K prior.

Technical Analysis: Australian Dollar moves back to the major level of 0.6550

The Australian Dollar traded near 0.6550 on Tuesday. If it surpasses this level, it could encounter immediate resistance around the major barrier of 0.6550, in conjunction with the nine-day Exponential Moving Average (EMA) at 0.6554. A successful breakthrough above this level might propel the AUD/USD pair to test the 38.2% Fibonacci retracement level at 0.6565. On the downside, if the price retreats, a significant support level lies at the psychological mark of 0.6500, followed by March’s low at 0.6477.

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 CAD AUD JPY NZD CHF
USD   -0.12% -0.13% -0.06% -0.12% -0.04% -0.25% 0.05%
EUR 0.12%   -0.02% 0.06% 0.01% 0.09% -0.11% 0.17%
GBP 0.13% 0.01%   0.07% 0.02% 0.10% -0.09% 0.18%
CAD 0.06% -0.07% -0.07%   -0.05% 0.03% -0.17% 0.13%
AUD 0.10% -0.02% -0.03% 0.04%   0.07% -0.15% 0.14%
JPY 0.03% -0.10% -0.11% -0.03% -0.06%   -0.19% 0.07%
NZD 0.22% 0.10% 0.10% 0.16% 0.10% 0.19%   0.28%
CHF -0.04% -0.17% -0.18% -0.11% -0.16% -0.08% -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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (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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