Australian Dollar remains soft ahead of eventful Friday

AUD/USD experienced a drop, adjusting to 0.6950, because of a USD recovery.
Strong Australian PMIs might limit the pair's downside.
The persistent hawkish views of the RBA keep backing the Aussie versus its peers.

Patricio Martín FXStreet

On Thursday, the AUD/USD is seeing a moderate decline, retracing some of the gains after the approximately 2% rally from the last sessions. The narrative of monetary policy divergence between the Federal Reserve (Fed), contemplating a less assertive approach toward interest rates, and the steadfast position of the Reserve Bank of Australia (RBA) preserves the push on the pair, putting the Aussie ahead of the Greenback. However, the USD staged a recovery on Thursday ahead of Friday’s speech from Jerome Powell at the Jackson Hole Symposium.

In spite of a mixed Australian economic outlook, underlined by strong August PMIs, and the RBA's hawkish stance ascribed to high inflation, markets are anticipating a minimal 25 basis points of easing for 2024, upholding a solid stand for the Aussie.

Daily digest market movers: Aussie's rally slackens despite strong PMIs, policy divergences to limit the losses

Softening US labor market data and soft S&P PMIs suggest that the Fed may follow a less assertive footing, leading to a potential depreciation of the USD.
In contrast, preliminary August PMIs from Australia exhibit a stout picture of the economy.
Manufacturing rose to 48.7 in contrast to 47.5 in July, Services scaled to 52.2 versus 50.4 in July, and the composite climbed to 51.4 in comparison to 49.9 in July. This development corroborates the RBA's hawkish policy disposition.
Despite promising Australian data, the path of the pair will continue to be guided by incoming data from both countries.
In the meantime, markets are extremely confident about a September cut by the Fed in September.

AUD/USD technical outlook: AUD/USD upsurge prevails with lower but firm momentum

Technical analysis suggests that the AUD/USD pair has persisted in its upward trajectory over the sessions, with a significant volume increase reinforcing a positive outlook. However, the price action suggests a consolidation of those gains.

The Relative Strength Index (RSI), which showcases market momentum, has risen slightly from previous sessions. Currently, at 59, the RSI suggests a slightly bullish sentiment and ongoing bullish pressure beneath the overbought level of 70, which was hit earlier in the week. Furthermore, the Moving Average Convergence Divergence (MACD) indicator aligns with this bullish tone with steady green bars.

Indeed, the AUD/USD pair appears to have consolidated above the 0.6700 support level, which now serves as a significant area for the pair. The immediate critical resistance comes in around the recent high of 0.6760-0.6800.

Interest rates FAQs

What are interest rates?

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.

How do interest rates impact currencies?

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.

How do interest rates influence the price of Gold?

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.

What is the Fed Funds rate?

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

Patricio Martín

FXStreet

Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.

GBP/USD hits multi-week tops around 1.3560

GBP/USD gathers fresh steam and advances to new three-month peaks near the 1.3560 zone on Friday. Cable’s sharp move higher comes after three daily drops in a row and follows the increasing selling pressure hurting the Greenback.

EUR/USD pops to fresh two-month highs, targets 1.1600

EUR/USD advances markedly, revisiting the upper 1.1500s for the first time since mid-June. The pair’s sharp uptick comes on the back of a strong retracement in the US Dollar amid BoJ intervention chatter and despite steady uncertainty in the Middle East.

Gold picks up pace, approaches $4,400

Gold rebounds toward the $4,400 mark per troy ounce on Friday, reversing the previous day’s pullback. The precious metal’s recovery comes as fresh and intense weakness keep weighing on the US Dollar, while traders keep assessing easing expectations of an imminent Fed interest rate hike and the situation from the Middle East.

Pi Network Price Forecast: PI extends consolidation as bulls eye $0.10

Pi Network (PI) price holds steady on Friday, maintaining a consolidating tone for three consecutive days. Mild retail strength in the PI token remains stable, with Open Interest above $9 million, while social buzz eases. PI token’s technical outlook is mixed, as bearish momentum wanes to neutral, with bulls eyeing the $0.1000 psychological level.

Weekly focus: Some relief in US inflation concerns

Actual inflation data for July came out as expected with a 0.1% m/m increase in headline CPI and 0.2% excluding food and energy. Annual headline inflation remains too high at 3.4% and means that wage earners are experiencing stagnating spending power at best, and core inflation is a bit higher than the inflation target of two percent would suggest.

Why is Crude Oil priced for a reopening the ships haven't made?

Fourteen vessels crossed the Strait of Hormuz on Tuesday. Before the war, the count ran near 120 a day. In the sessions since the waterway was publicly declared open, Brent has drifted back to $87 and West Texas Intermediate (WTI) to $81, both a little lower again on Wednesday, with daily momentum on each unwound from the top of its range in late July to the low twenties now.