Australian Dollar depreciates, downside seems limited due to the hawkish RBA
- The Australian Dollar retreats from its 20-month high of 0.6908.
- Australia’s Monthly Consumer Price Index increased 2.7% YoY in August, falling short of expected 2.8% rise and previous 3.5% rise.
- PBOC's Gongsheng announced to reduce the RRR by 50 basis points and the seven-day repo rate from 1.7% to 1.5%.
The Australian Dollar (AUD) loses ground against the US Dollar (USD) after a weaker-than-expected Monthly Consumer Price Index report on Wednesday. However, the commodity-linked Aussie found support as China, its largest trading partner, announced a new round of stimulus measures.
The Reserve Bank of Australia (RBA) held the Official Cash Rate (OCR) steady at 4.35% on Tuesday, offering support to the Australian Dollar and bolstering the AUD/USD pair. During the press conference following the policy decision, RBA Governor Michele Bullock confirmed that rates will remain on hold for now and clarified that a rate hike was not explicitly considered during the meeting.
People's Bank of China (PBOC) Governor Pan Gongsheng announced on Tuesday that China will reduce the Reserve Requirement Ratio (RRR) by 50 basis points (bps). Gongsheng also noted that the central bank would lower the seven-day repo rate from 1.7% to 1.5%, and reduce the down payment for second homes from 25% to 15%. Additionally, the PBOC cut the one-year Medium-term Lending Facility (MLF) rate from 2.30% to 2.0% on Thursday, following the last reduction in July 2024, when the rate was lowered from 2.50%.
Daily Digest Market Movers: Australian Dollar edges lower despite a hawkish RBA
- Australian Treasurer Jim Chalmers will visit China this week to strengthen economic ties between the two countries. Given our vulnerability to fluctuations in the Chinese economy, it is crucial to meet with key Chinese officials in Beijing over the next two days, Chalmers said.
- In a recent note, JP Morgan advised investors to monitor commodities and bond yields in light of the positive market outlook following China's stimulus proposals on Tuesday. The bank emphasized that global growth has received a new boost from China, a factor that has been lacking in recent years. This development notably reduces the risk of a recession and is seen as favorable for the markets. However, JP Morgan also cautioned about the potential risk of reinflation.
- Australia’s Monthly Consumer Price Index rose 2.7% year-over-year in August, down from the previous 3.5% rise and expected 2.8% increase.
- Federal Reserve Governor Michelle Bowman stated on Tuesday that key inflation indicators are still "uncomfortably above" the 2% target, urging caution as the Fed moves forward with interest rate cuts. Despite this, she expressed a preference for a more conventional approach, advocating for a quarter percentage point reduction.
- US Consumer Confidence Index fell to 98.7 in September from a revised 105.6 in August. This figure registered the biggest decline since August 2021.
- The ANZ-Roy Morgan Australia Consumer Confidence Index rose by 0.8 points to 84.9 this week. Despite this increase, Consumer Confidence has now remained below the 85.0 mark for 86 consecutive weeks. On a year-over-year basis, the index is up by 8.5 points from 76.4.
- The S&P Global US Composite Purchasing Managers Index (PMI) grew at a slower rate in September, registering 54.4 compared to 54.6 in August. The Manufacturing PMI unexpectedly dropped to 47.0, indicating contraction, while the Services PMI expanded more than anticipated, reaching 55.4.
- Chicago Fed President Austan Goolsbee noted, “Many more rate cuts are likely needed over the next year, rates need to come down significantly.” Additionally, Atlanta Fed President Raphael Bostic said Monday that the US economy is close to normal rates of inflation and unemployment and the central bank needs monetary policy to "normalize" as well, per Reuters.
- Australia’s Judo Bank Composite PMI declined to 49.8 in September from 51.7 in August, indicating a contraction in business activity as slower growth in the services sector was unable to counterbalance a deeper slump in manufacturing output. The Services PMI fell to 50.6 in September from 52.5 previously, while the Manufacturing PMI decreased to 46.7 from 48.5 in August.
Technical Analysis: Australian Dollar rises to near 0.6900, the upper boundary of the ascending channel
The AUD/USD pair trades near 0.6890 on Wednesday. Technical analysis of the daily chart indicates that the pair is moving upward within the ascending channel pattern, suggesting a bullish bias. Additionally, the 14-day Relative Strength Index (RSI) has advanced towards the 70 mark, suggesting upward gains remain probable but could face a consolidation soon.
In terms of resistance, the AUD/USD pair could test the upper boundary of the ascending channel, around the 0.6930 level, followed by the psychological level of 0.6950.
The AUD/USD pair could find support at the lower boundary of the ascending channel, which coincides with the nine-day Exponential Moving Average (EMA) at 0.6816. The next significant support is at the psychological level of 0.6700. A break below this level could push the pair further down toward its six-week low of 0.6622.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.09% | 0.12% | 0.14% | 0.05% | 0.24% | 0.24% | -0.18% | |
| EUR | 0.09% | 0.21% | 0.26% | 0.13% | 0.33% | 0.33% | -0.10% | |
| GBP | -0.12% | -0.21% | 0.00% | -0.08% | 0.11% | 0.08% | -0.29% | |
| JPY | -0.14% | -0.26% | 0.00% | -0.11% | 0.09% | 0.07% | -0.32% | |
| CAD | -0.05% | -0.13% | 0.08% | 0.11% | 0.20% | 0.19% | -0.21% | |
| AUD | -0.24% | -0.33% | -0.11% | -0.09% | -0.20% | 0.00% | -0.41% | |
| NZD | -0.24% | -0.33% | -0.08% | -0.07% | -0.19% | -0.00% | -0.41% | |
| CHF | 0.18% | 0.10% | 0.29% | 0.32% | 0.21% | 0.41% | 0.41% |
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).
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.
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.
