Australian Dollar Price Forecast: Aussie steady as markets digest RBA signals
- AUD/USD extended its recovery, rising near 0.6580.
- RBA doubled down on its hawkish rhetoric on Thursday.
- Commodity prices are also providing the AUD with traction.
The AUD/USD pair recorded an upturn at 0.6580 during Thursday's sessions, a notable rise by 0.80%. The uplift is linked to a mix of the Reserve Bank of Australia's (RBA) recent echo of their hawkish tone and an increase in commodity prices, hence making the Australian Dollar an eminent performer.
Due to the mixed Australian economic outlook and the RBA’s hawkish stance, markets are now pricing just 25 bps of easing in 2024.
Daily digest market movers: RBA's hawkish tone directs the AUD
- The Reserve Bank of Australia firmly held rates steady at 4.35%, strongly echoing "the Board is not ruling anything in or out”.
- Importantly, the Bank warned about the need to stay vigilant toward potential upside risks to inflation, indicating no quick turnaround in policies.
- RBA's Governor Bullock clearly stressed on Thursday that there is lesser necessity for rate cuts. She struck a hawkish tone, stating that the board "will not hesitate to raise rates if it needs to" to combat persisting inflation.
- Australian interest rate futures were quick to revise from almost 50 bps of cuts by the end of the year to 25 bps.
AUD/USD technical outlook: Volatility and indicators adjust to RBA decision
The AUD/USD in recent sessions has been trading within a specified range between the support at 0.6350 and resistance at 0.6590. The Relative Strength Index (RSI) rose toward 40, indicating a balance between buying and selling pressure, but mostly signifying a recovery of bullish sentiment.
The Moving Average Convergence Divergence (MACD) displays a series of decreasing red bars, aligning with a potential deceleration of bearish momentum.
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Author
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
