Australian Dollar declines, while US Dollar extends gains due to the hawkish Fed


  • The Australian Dollar declines as the US Dollar remains stronger on the hawkish Fed.
  • 90% of economists anticipate stable RBA rates in Q3, with a potential 25 basis-point reduction by the end of 2024.
  • The US Dollar (USD) remains stable due to the hawkish stance of the Fed.

The Australian Dollar (AUD) edges lower as the US Dollar remains stronger due to higher US Treasury yields on Friday. However, the AUD/USD pair attempted to recover its daily losses earlier in the day following a Reuters poll of 43 economists. The poll predicts that the Reserve Bank of Australia (RBA) could maintain its current interest rates in June. A significant 90% of economists anticipate stable interest rates in the next quarter, with a potential 25 basis-point reduction to 4.10% projected by the end of 2024. Furthermore, 63% of economists foresee interest rates declining to 4.10% or below by year-end, while a minority (35%) expect no change.

The US Dollar (USD) has maintained stability following gains from the previous session despite the release of economic data showing a softer US Producer Price Index (PPI) and higher-than-expected Initial Jobless Claims. Federal Open Market Committee (FOMC) policymakers have revised their outlook, now anticipating only one rate cut for the year, down from the three cuts forecasted in March. This adjustment is bolstering the US Dollar's (USD) resilience and exerting pressure on the AUD/USD pair.

Investors are awaiting the release of the preliminary US Michigan Consumer Sentiment index on Friday. This key indicator will offer additional insights into consumer confidence and the broader economic outlook.

Daily Digest Market Movers: Australian Dollar may limit its downside due to hawkish RBA

  • US Initial Jobless Claims for the week ending June 7 showed a significant increase, with the number of claims rising by 13,000 to 242,000. This figure surpassed market expectations, which were set at 225,000, marking the highest level of jobless claims since August 2023.
  • US Producer Price Index (PPI) came in weaker than expected, increasing 2.2% YoY in May, compared to the 2.3% rise in April (revised from 2.2%). Meanwhile, the core PPI figure rose 2.3% YoY in May, below the consensus and April’s reading of 2.4%.
  • Australia’s Employment Change showed on Thursday that the number of employed people increased by 39.7K in May, exceeding the expected 30.0K increase and the previous 38.5K rise. Meanwhile, the Unemployment Rate came in at 4.0%, below April’s 4.1% rate as expected.
  • At its June meeting on Wednesday, the Federal Open Market Committee (FOMC) kept its benchmark lending rate unchanged within the range of 5.25%–5.50%, marking the seventh consecutive meeting without a rate change, as widely anticipated. In a press conference post Fed decision, Fed Chair Jerome Powell noted that the restrictive stance on monetary policy is having the effect on inflation that the central bank had expected. Additionally, FOMC policymakers expect just one rate cut this year, down from three in March.
  • On Tuesday, National Australia Bank (NAB) Chief Economist Alan Oster commented, “There are warning signs on the outlook for growth but at the same time reasons to be very wary about the inflation outlook, and they expect the RBA to keep rates on hold for some time yet as they navigate through these contrasting risks,” as per the official transcript.
  • Last week, RBA Governor Michele Bullock indicated that the central bank is prepared to increase interest rates if the Consumer Price Index (CPI) does not return to the target range of 1%-3%, according to NCA NewsWire.

Technical Analysis: Australian Dollar remains below 0.6650

The Australian Dollar trades around 0.6630 on Friday. Analysis of the daily chart reveals a neutral bias for the AUD/USD pair as it consolidates within a rectangle formation. The 14-day Relative Strength Index (RSI) has recently crossed above the 50 level, indicating a potential bullish bias emerging.

In terms of immediate levels, the AUD/USD pair finds support around the 50-day Exponential Moving Average (EMA) at 0.6605, with further support at the lower boundary of the rectangle formation near 0.6585.

Looking upwards, the AUD/USD pair could test resistance near the upper boundary of the rectangle formation around 0.6700, followed by the high from May at 0.6714.

AUD/USD: Daily Chart

Australian Dollar price in the last 7 days

The table below shows the percentage change of the Australian Dollar (AUD) against listed major currencies in the last 7 days. The Australian Dollar was the weakest against the US Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   1.64% 0.52% 0.62% 0.85% 1.42% 0.98% 0.49%
EUR -1.69%   -1.14% -1.06% -0.82% -0.24% -0.69% -1.20%
GBP -0.53% 1.13%   0.10% 0.33% 0.91% 0.45% -0.06%
CAD -0.62% 1.04% -0.09%   0.23% 0.82% 0.36% -0.14%
AUD -0.86% 0.81% -0.32% -0.23%   0.59% 0.13% -0.38%
JPY -1.45% 0.24% -0.92% -0.84% -0.58%   -0.47% -0.98%
NZD -0.99% 0.69% -0.45% -0.36% -0.12% 0.45%   -0.51%
CHF -0.48% 1.19% 0.05% 0.13% 0.38% 0.97% 0.50%  

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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (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.

 

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