- The Australian Dollar appreciates ahead of US PMI data on Thursday.
- Australia's Consumer inflation expectations dropped to 4.1% in May from 4.6% in April, hitting the lowest point since October 2021.
- FOMC Minutes suggested a lack of progress on inflation, casting doubt on the Fed's willingness to proceed with rate cuts.
The Australian Dollar (AUD) halts its three-day losing streak on Thursday, possibly driven by the improved risk appetite. However, the Aussie Dollar came under pressure following the Consumer Inflation Expectation, released by the Melbourne Institute. Consumer expectations of future inflation over the next 12 months fell to 4.1% in May from 4.6% in April, marking the lowest level since October 2021.
Australian private sector activity remained expansionary for the fourth straight month in May. The preliminary Judo Bank Composite Purchasing Managers Index (PMI) decreased to 52.6 in May from April’s reading of 53.0, indicating a slight moderation in growth. The growth was mainly fueled by an expansion in the services sector, while the decline in manufacturing output slowed down.
The US Dollar (USD) remains tepid ahead of the release of PMI data from the United States (US) on Thursday. However, the Greenback strengthened on Wednesday as the Federal Open Market Committee (FOMC) Meeting Minutes suggested hawkish sentiment surrounding the Federal Reserve (Fed) to maintain higher rates for longer. Fed policymakers expressed concerns about the lack of progress on inflation, which was more persistent than expected at the start of 2024. As a result, the Fed is hesitant to proceed with interest rate cuts.
Daily Digest Market Movers: Australian Dollar inches higher due to risk-on mood
- Tensions are escalating following Lai Ching-te's assumption of office as Taiwan's new president. Chinese state media reports indicate that China has deployed numerous fighter jets and conducted simulated strikes in specific areas in the region, including actions from naval vessels. Any geopolitical tension in the region may impact the Australian market as China and Australia are both close trade partners.
- The Judo Bank Australia Services PMI was 53.1 in May, down from April’s reading of 53.6. This marks the fourth consecutive month of expansion, albeit at a slower yet still solid pace. The Manufacturing PMI remained unchanged at 49.6 in May, indicating that manufacturing conditions continued to deteriorate for the fourth consecutive month.
- The ASX 200 Index moves below 7,800 on Thursday due to declines in mining and energy stocks following a significant drop in commodity prices. Additionally, Australian shares were influenced by a weak performance on Wall Street overnight after FOMC meeting minutes suggested concerns about the slow progress on inflation.
- According to the CME FedWatch Tool, the probability of the Federal Reserve implementing a 25 basis-point rate cut in September has seen a slight downtick to 50.7%, compared to 51.6% a day ago.
- Federal Reserve Bank of Boston President Susan Collins spoke at the event titled "Central Banking in the Post-Pandemic Financial System" on Tuesday. Collins stated that progress toward interest rate adjustment will take longer and emphasized that patience is the right policy for the Fed, per Reuters. Fed Governor Christopher Waller stated that he needs to see several more months of favorable inflation data before he would be comfortable supporting an easing in policy.
- Minutes from the RBA meeting in May 2024 showed that the board considered raising rates but ultimately judged the case for maintaining a steady policy to be stronger. Policymakers agreed that it was challenging to either rule in or rule out future changes in the cash rate. They noted that the flow of data had increased the risk of inflation remaining above the target for an extended period.
Technical Analysis: Australian Dollar remains below a key level of 0.6650
The Australian Dollar trades around 0.6620 on Thursday. The Analysis of the daily chart indicates a weakening of a bullish bias as the AUD/USD pair has breached below the lower boundary of the rising wedge. Despite this, the 14-day Relative Strength Index (RSI) remains slightly above the 50 level. However, a further decline in this momentum indicator could confirm a bearish bias.
The psychological support level of 0.6600 is significant. A continued decline may increase pressure on the AUD/USD pair, potentially leading it toward the throwback support region at 0.6470.
Conversely, the nine-day Exponential Moving Average (EMA) at 0.6639 could pose immediate resistance, followed by the major level of 0.6650. Breaking above the lower boundary of the rising wedge could reinforce the prevailing bullish bias for the AUD/USD pair.
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 strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.56% | -0.30% | 0.59% | 1.12% | 1.49% | 0.32% | 1.50% | |
| EUR | -0.56% | -0.89% | 0.02% | 0.58% | 0.92% | -0.25% | 0.95% | |
| GBP | 0.30% | 0.87% | 0.90% | 1.45% | 1.79% | 0.62% | 1.81% | |
| CAD | -0.59% | -0.03% | -0.89% | 0.55% | 0.92% | -0.28% | 0.89% | |
| AUD | -1.15% | -0.58% | -1.44% | -0.56% | 0.37% | -0.83% | 0.36% | |
| JPY | -1.49% | -0.93% | -1.79% | -0.91% | -0.34% | -1.20% | -0.01% | |
| NZD | -0.30% | 0.25% | -0.63% | 0.28% | 0.82% | 1.18% | 1.19% | |
| CHF | -1.53% | -0.95% | -1.84% | -0.92% | -0.37% | 0.00% | -1.20% |
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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