Australian Dollar holds losses ahead of US GDP data
- The Australian Dollar depreciates due to the stark decline in prices of prices of oil, iron ore, and copper.
- The PBOC reduced the one-year MLF rate to 2.30% from 2.50% on Thursday.
- The US Dollar may struggle due to a decline in Treasury yields.
The Australian Dollar (AUD) continues its losing streak for the ninth consecutive day on Thursday, primarily due to declining prices of oil, iron ore, and copper. As Australia is a net exporter of energy and metals, its currency is particularly sensitive to fluctuations in commodity prices.
The AUD also faced pressure from recent Purchasing Managers Index (PMI) data, which showed that Australia's business activity cooled to a six-month low in July. Manufacturing activity remained in contraction, and growth in the services sector slowed.
The Aussie Dollar may limit its downside as the Reserve Bank of Australia (RBA) is expected to delay easing its policy tightening compared to other major central banks due to persistent inflationary pressures and a tight labor market. Futures markets currently imply a 20% probability that the RBA could hike interest rates at its August meeting.
The AUD/USD pair also faced pressure from a strengthening US Dollar (USD) as investors prepared for upcoming US GDP and PCE inflation data. Recent US PMI data indicated that private-sector activity expanded at a faster pace in July, highlighting the resilience of US growth despite higher interest rates. This data provides the Federal Reserve (Fed) with some flexibility to maintain its restrictive policy stance if inflation does not show signs of slowing.
Traders are expected to closely monitor the US Gross Domestic Product (GDP) Annualized (Q2) data on Thursday, with the market forecast of 2.0% growth in the second quarter, following the previous 1.4% growth. Investors may gain new insights into the economic conditions in the United States.
Daily Digest Market Movers: Australian Dollar declines due to cooling business activity
- The S&P Global US Services PMI increased to a reading of 56.0 in July, the highest in 28 months, up from a 55.3 reading in June and exceeding market expectations of 55.3. Meanwhile, the Composite PMI rose to 55.0 from the previous 54.8 reading, marking the highest reading since April 2022 and indicating sustained growth over the past 18 months.
- Sluggish economic activity in China has put additional selling pressure on the Aussie Dollar. Concerns about the weak Chinese economy were heightened by an unexpected rate cut from the People's Bank of China (PBoC) on Monday. The People’s Bank of China (PBOC), cut the one-year Medium-term Lending Facility (MLF) rate from 2.50% to 2.30% on Thursday. Additionally, the Bank of China, one of the world's largest banks, announced a 10-20 basis points cut in time deposit rates. Any change in the Chinese economy could impact the Australian markets as both countries are close trade partners.
- Australia's Judo Bank Manufacturing PMI improved to 47.4 in July from 47.2 in June. Meanwhile, the Services PMI dropped to 50.8 in July from 51.2 in June. The Composite PMI also declined, falling to 50.2 in July from 50.7 in June.
- Media reports say that Vice President Kamala Harris has just passed 1,976 Democratic delegates to secure the party's presidential nomination. Harris is now the Democratic Party’s Presumptive Nominee for November’s Presidential Election.
- Federal Reserve Bank of New York President John Williams stated on Friday that the long-term trends that caused declines in neutral interest rates before the pandemic continue to prevail. Williams noted, "My own Holston-Laubach-Williams estimates for r-star in the United States, Canada, and the Euro area are about the same level as they were before the pandemic," according to Bloomberg.
- Reuters cited Sean Langcake, head of macroeconomic forecasting for Oxford Economics Australia, saying, "The current pace of employment growth suggests demand is resilient and cost pressures will remain. We think the RBA will stay the course and keep rates on hold, but August is certainly a live meeting."
Technical Analysis: Australian Dollar falls to near 0.6550
The Australian Dollar trades around 0.6570 on Thursday. The daily chart analysis indicates that the AUD/USD pair has broken below the descending channel, signaling the strengthening of a bearish bias. The 14-day Relative Strength Index (RSI) is positioned at the level of 30, suggesting an oversold condition for the currency pair and pointing to a potential correction soon.
The AUD/USD pair could find support around the psychological level of 0.6500, followed by a throwback support at 0.6470.
On the upside, key resistance is at the lower boundary of the descending channel at 0.6590, followed by the psychological level of 0.6600. A return to the descending channel may weaken the bearish bias and support the AUD/USD pair in testing the nine-day Exponential Moving Average (EMA) at 0.6646. A breakthrough above this level could lead the pair to test the upper boundary of the descending channel around 0.6715, potentially aiming for 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 weakest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.00% | 0.15% | -0.67% | 0.09% | 0.55% | 0.24% | -0.21% | |
| EUR | -0.00% | 0.15% | -0.65% | 0.08% | 0.55% | 0.23% | -0.20% | |
| GBP | -0.15% | -0.15% | -0.77% | -0.07% | 0.42% | 0.08% | -0.36% | |
| JPY | 0.67% | 0.65% | 0.77% | 0.76% | 1.22% | 0.88% | 0.46% | |
| CAD | -0.09% | -0.08% | 0.07% | -0.76% | 0.47% | 0.16% | -0.30% | |
| AUD | -0.55% | -0.55% | -0.42% | -1.22% | -0.47% | -0.30% | -0.76% | |
| NZD | -0.24% | -0.23% | -0.08% | -0.88% | -0.16% | 0.30% | -0.46% | |
| CHF | 0.21% | 0.20% | 0.36% | -0.46% | 0.30% | 0.76% | 0.46% |
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.
