Australian Dollar trims gains as US Dollar appreciate due to cautious Fed
- The Australian Dollar loses ground amid increased risk aversion.
- RBA meeting minutes could offer further insights into the central bank's policy outlook on Tuesday.
- The US Dollar appreciates due to hawkish comments from Fed officials.
The Australian Dollar (AUD) faced challenges against the US Dollar (USD) on Monday. However, the downward of the AUD/USD pair could be limited due to hawkish comments from Reserve Bank of Australia (RBA) Governor Michele Bullock last Thursday. Bullock emphasized that current interest rates are sufficiently restrictive and will remain unchanged until the central bank is confident about the inflation outlook.
Australia's 10-year government bond yield eased slightly to around 4.66%, retreating from a one-year high. Recent data indicated a slowdown in employment growth for October, while the unemployment rate held steady, highlighting the resilience of the labor market. Market focus now shifts to the release of the latest RBA meeting minutes on Tuesday, which could offer further insights into the central bank's policy stance.
The downside risk for the AUD/USD pair is bolstered by the solid US Dollar, driven by recent hawkish remarks from Federal Reserve (Fed) officials and stronger-than-expected US economic data.
Fed Chair Jerome Powell downplayed the likelihood of imminent rate cuts, highlighting the economy's resilience, robust labor market, and persistent inflationary pressures. Powell remarked, "The economy is not sending any signals that we need to be in a hurry to lower rates."
Australian Dollar depreciates due to increased risk aversion
- Federal Reserve Bank of Chicago President Austan Goolsbee remarked on Friday that markets often overreact to changes in interest rates. Goolsbee emphasized the importance of the Fed adopting a cautious, gradual approach in moving toward the neutral rate.
- Boston Fed President Susan Collins tempered expectations for continued rate cuts in the near term while maintaining market confidence in a potential rate reduction in December. Collins stated, "I don't see a big urgency to lower rates, but I want to preserve a healthy economy."
- The US Census Bureau reported on Friday that Retail Sales increased by 0.4% month-over-month in October, exceeding the market consensus of 0.3%. Additionally, the NY Empire State Manufacturing Index for November posted an unexpected surge, coming in at 31.2 compared to the anticipated 0.7 decline, signaling robust manufacturing activity.
- China’s Retail Sales rose 4.8% year-over-year in October, surpassing the expected 3.8% and the 3.2% increase seen in September. Meanwhile, Industrial Production grew by 5.3% YoY, below the forecasted 5.6% and the 5.4% growth recorded in the previous period.
- China's National Bureau of Statistics (NBS) shared its economic outlook during its press conference, noting an improvement in China's consumer expectations in October. The bureau plans to intensify policy adjustments and boost domestic demand, highlighting that recent policies have had a positive impact on the economy.
- The US Producer Price Index (PPI) rose by 2.4% year-over-year in October, up from a revised 1.9% increase in September (previously 1.8%) and surpassing market expectations of 2.3%. Meanwhile, the Core PPI, which excludes food and energy, climbed 3.1% YoY, slightly above the anticipated 3.0%.
- Australia’s seasonally adjusted unemployment rate held steady at 4.1% in October for the third month in a row, matching market expectations. However, employment change data revealed only 15.9K new jobs added in October, which fell short of the anticipated 25.0K.
- Australia's Consumer Inflation Expectations dropped to 3.8% in November, down from 4.0% in the previous month, reaching the lowest level since October 2021.
Australian Dollar remains below 0.6500 within the oversold zone
AUD/USD hovers around 0.6470 on Monday, reflecting short-term downward pressure on the daily chart as the pair stays below the nine-day Exponential Moving Average (EMA). However, the 14-day Relative Strength Index (RSI) has begun climbing from the 30 level, indicating that selling pressure may be waning and hinting at the potential for an upward correction.
On the downside, the AUD/USD pair may encounter significant support around the 0.6400 level. A breach of this psychological threshold could intensify downward pressure, potentially pushing the pair toward the yearly low of 0.6348, last seen on August 5.
Immediate resistance for the AUD/USD pair is at the psychological level of 0.6500. A break above this could propel the pair toward the nine-day EMA at 0.6514, followed by the 14-day EMA at 0.6542. Clearing these EMAs could open the path for a move toward the three-week high of 0.6687.
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 Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.00% | -0.11% | 0.26% | 0.02% | 0.04% | 0.25% | -0.07% | |
| EUR | -0.01% | 0.05% | 0.36% | 0.12% | 0.18% | 0.35% | 0.03% | |
| GBP | 0.11% | -0.05% | 0.33% | 0.10% | 0.13% | 0.30% | -0.02% | |
| JPY | -0.26% | -0.36% | -0.33% | -0.26% | -0.16% | 0.04% | -0.27% | |
| CAD | -0.02% | -0.12% | -0.10% | 0.26% | 0.05% | 0.22% | -0.09% | |
| AUD | -0.04% | -0.18% | -0.13% | 0.16% | -0.05% | 0.17% | -0.15% | |
| NZD | -0.25% | -0.35% | -0.30% | -0.04% | -0.22% | -0.17% | -0.31% | |
| CHF | 0.07% | -0.03% | 0.02% | 0.27% | 0.09% | 0.15% | 0.31% |
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.
