Australian Dollar appreciates due to hawkish signals from RBA
- The Australian Dollar edges higher following the hawkish remarks from the RBA Governor Michele Bullock.
- RBA's Bullock stated that inflation may not return to the 2–3% target range until the end of 2025.
- CME FedWatch tool suggests 72.0% odds of a 50-basis point Fed rate cut in September, up from 11.8% last week.
The Australian Dollar (AUD) appreciates against the US Dollar (USD) following the comments from Reserve Bank of Australia (RBA) Governor Michele Bullock on Thursday. Bullock emphasized the need to stay vigilant about inflation risks and indicated a willingness to hike rates if necessary, stating that inflation may not return to the 2–3% target range until the end of 2025.
The US Federal Reserve (Fed) is widely anticipated to implement a more aggressive rate cut beginning in September, following weaker employment data from July that has heightened concerns about a potential US recession.
According to the CME FedWatch tool, there is now a 72.0% probability of a 50-basis point (bps) interest rate cut by the US Federal Reserve (Fed) in September, up from 11.8% a week earlier. The expectation of deeper rate cuts may put pressure on the US Dollar in the near term.
Daily Digest Market Movers: Australian Dollar appreciates following the hawkish RBA
- The Australian Dollar might encounter difficulties due to increased risk aversion linked to escalating tensions in the Middle East. According to two US intelligence officials, Iran and its allies are preparing potential retaliation against Israel. This response is expected following the recent killings of a top military commander of Iran’s Hezbollah in Lebanon and a senior Hamas leader in Tehran, as reported by CNN.
- China's Trade Balance showed a surplus of 84.65 billion for July, falling short of the 99.0 billion expected and 99.05 billion previously. Exports (YoY) came in at 7.0% vs. 9.7% expected and 8.6% previously. Meanwhile, Imports increased 7.2% YoY against 3.5% expected, swinging from a decline of 2.3% prior. Any change in the Chinese economy could impact the Australian market as both countries are close trade partners.
- The AiG Australian Industry Index showed a slight easing in contraction in July, improving to -20.7 from the previous -25.6 reading. Despite this improvement, the index has indicated contraction for the past twenty-seven months.
- On Wednesday, 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.
- On Tuesday, RBA Governor Michele Bullock mentioned that the board had seriously considered increasing the cash rate from 4.35% to 4.6% due to ongoing concerns about excess demand in the economy. Additionally, RBA Chief Economist Sarah Hunter noted on Wednesday that the Australian economy is performing somewhat stronger than previously anticipated by the RBA.
- According to Reuters, Federal Reserve Bank of San Francisco President Mary Daly expressed increased confidence on Monday that US inflation is moving towards the Fed's 2% target. Daly noted that “risks to the Fed's mandates are becoming more balanced and that there is openness to the possibility of cutting rates in upcoming meetings.”
- Chicago Fed President Austan Goolsbee stated on Monday that the US central bank is prepared to act if economic or financial conditions worsen. Goolsbee emphasized, "We're forward-looking about it, and so if the conditions collectively start coming in like that on the through line, there’s deterioration on any of those parts, we’re going to fix it.” according to Reuters.
Technical Analysis: Australian Dollar hovers around 0.6550
The Australian Dollar trades around 0.6530 on Thursday. The daily chart analysis shows that the AUD/USD pair is consolidating above the descending channel, signaling a weakening of a bearish bias. Furthermore, the 14-day Relative Strength Index (RSI) is rising from the oversold 30 level, indicating a potential for further upward movement.
In terms of support, the AUD/USD pair may find support at the upper boundary of the descending channel around the throwback support of 0.6470 level. A break below the latter could exert downward pressure on the pair to test the lower boundary of the descending channel around the level of 0.6420
On the upside, the nine-day Exponential Moving Average (EMA) at 0.6535 serves as immediate resistance, with additional resistance at the 0.6575 level, where "throwback support" has turned into resistance. A breakout above this level could push the AUD/USD pair toward a six-month high of 0.6798.
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 | -0.13% | -0.06% | -0.54% | -0.14% | -0.44% | -0.07% | -0.40% | |
| EUR | 0.13% | 0.08% | -0.38% | -0.03% | -0.32% | 0.06% | -0.28% | |
| GBP | 0.06% | -0.08% | -0.48% | -0.12% | -0.41% | -0.05% | -0.37% | |
| JPY | 0.54% | 0.38% | 0.48% | 0.35% | 0.07% | 0.40% | 0.10% | |
| CAD | 0.14% | 0.03% | 0.12% | -0.35% | -0.29% | 0.08% | -0.25% | |
| AUD | 0.44% | 0.32% | 0.41% | -0.07% | 0.29% | 0.37% | 0.04% | |
| NZD | 0.07% | -0.06% | 0.05% | -0.40% | -0.08% | -0.37% | -0.33% | |
| CHF | 0.40% | 0.28% | 0.37% | -0.10% | 0.25% | -0.04% | 0.33% |
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.
Author
Akhtar Faruqui
FXStreet
Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.
