Australian Dollar appreciates due a hawkish mood surrounding the RBA, inflation data eyed
- The Australian Dollar extends gains due to hawkish sentiment surrounding the RBA's policy decision.
- Australia's Building Permits declined by 6.5% MoM in June, swinging from a 5.7% increase in May.
- The US Dollar could lose ground due to increased odds of a Fed rate cut in September.
The Australian Dollar (AUD) edges higher against the US Dollar (USD) following the release of Building Permits data on Tuesday. Australia's Consumer Price Index (CPI) data will be released on Wednesday, offering potential insights into the future direction of the Reserve Bank of Australia’s (RBA) monetary policy. Analysts anticipate a slight re-acceleration in Australia’s headline inflation for the second quarter, with the core rate likely remaining steady.
This inflation report will be pivotal in determining whether the RBA will opt for a rate hike at its policy meeting next week. However, economists have cautioned that an additional increase in interest rates could jeopardize Australia’s economic recovery.
The AUD/USD pair may limit its downside as the US Dollar could face challenges due to heightened expectations of the Federal Reserve’s (Fed) interest rate cut in September. Additionally, signs of cooling inflation and easing labor market conditions in the United States have fueled expectations of three rate cuts by the Fed this year. The Fed's Interest Rate Decision will be a focal point on Wednesday.
Daily Digest Market Movers: Australian Dollar declines due to risk-off mood
- Australia's Building Permits (MoM) fell by 6.5% in June, exceeding market expectations of a 3.0% decline. This follows a 5.7% increase in May. On a year-over-year basis, Building Permits declined by 3.7%, compared to the previous year's decline of 8.5%.
- National Australia Bank (NAB) anticipates that the Reserve Bank of Australia's (RBA) cash rate will remain stable at 4.35% until May 2025, according to a recent NAB Economics outlook. Looking ahead, the NAB Economics team predicts a decline to 3.6% by December 2025, with further decreases expected in 2026.
- In a media release on Monday, the Australian Prudential Regulation Authority (APRA) warned that arrears rates are increasing slowly. Following their latest quarterly assessment of domestic and international economic conditions, APRA announced that they will keep macroprudential policy settings on hold. These comments reflect their ongoing evaluation of both domestic and global economic environments.
- On Friday, the US Personal Consumption Expenditures (PCE) Price Index rose by 2.5% year-over-year in June, down slightly from 2.6% in May, meeting market expectations. On a monthly basis, the PCE Price Index increased by 0.1% after being unchanged in May.
- The US Core PCE inflation, which excludes volatile food and energy prices, also climbed to 2.6% in June, consistent with May's increase and above the forecast of 2.5%. The core PCE Price Index rose by 0.2% month-over-month in June, compared to 0.1% in May.
- Bank of America suggests that robust economic growth in the United States enables the Federal Open Market Committee (FOMC) to "afford to wait" before implementing any adjustments. The BofA notes that the economy "remains strong" and expects the Fed to begin rate cuts in December.
Technical Analysis: Australian Dollar hovers around 0.6550
The Australian Dollar trades around 0.6550 on Tuesday. The daily chart analysis shows that the AUD/USD pair treks the path of a downtrend line. The 14-day Relative Strength Index (RSI) is hovering at the oversold 30 level, indicating that the currency pair may be poised for a potential upward correction soon.
The AUD/USD pair could find immediate support around the key level of 0.6540. A break below this level could exert pressure on the pair to navigate the region around the throwback support at the 0.6470 level.
On the upside, key resistance is at the nine-day Exponential Moving Average (EMA) at 0.6595. A break above this level could lead the AUD/USD pair to test the psychological level of 0.6690, with a potential aim 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 strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.00% | 0.09% | 0.40% | -0.06% | -0.11% | -0.26% | 0.12% | |
| EUR | 0.00% | 0.10% | 0.42% | -0.04% | -0.12% | -0.25% | 0.13% | |
| GBP | -0.09% | -0.10% | 0.34% | -0.14% | -0.22% | -0.33% | 0.03% | |
| JPY | -0.40% | -0.42% | -0.34% | -0.47% | -0.53% | -0.67% | -0.28% | |
| CAD | 0.06% | 0.04% | 0.14% | 0.47% | -0.05% | -0.19% | 0.17% | |
| AUD | 0.11% | 0.12% | 0.22% | 0.53% | 0.05% | -0.15% | 0.24% | |
| NZD | 0.26% | 0.25% | 0.33% | 0.67% | 0.19% | 0.15% | 0.38% | |
| CHF | -0.12% | -0.13% | -0.03% | 0.28% | -0.17% | -0.24% | -0.38% |
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.
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.
