Australian Dollar underperforms as RBA’s Hauser warns of stagflation
- Australian Dollar trades lower against its major peers amid fears of stagflation.
- RBA’s Hauser warns that stagflation could be a nightmare for Australia.
- US-Iran would likely return to Pakistan for the second round of talks.
The Australian Dollar (AUD) underperforms its major currency peers, except the US Dollar (USD), during the European trading session on Tuesday. The antipodean faces selling pressure as Reserve Bank of Australia (RBA) deputy governor Andrew Hauser warned in a fire chat event, earlier in the day, that the coming months will be challenging for Australia in the wake of the energy crisis due to Middle East conflicts and high inflationary pressures.
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 | -0.27% | -0.23% | -0.29% | -0.18% | -0.07% | -0.44% | -0.46% | |
| EUR | 0.27% | 0.04% | -0.02% | 0.10% | 0.20% | -0.18% | -0.20% | |
| GBP | 0.23% | -0.04% | -0.04% | 0.07% | 0.15% | -0.21% | -0.25% | |
| JPY | 0.29% | 0.02% | 0.04% | 0.12% | 0.22% | -0.15% | -0.18% | |
| CAD | 0.18% | -0.10% | -0.07% | -0.12% | 0.10% | -0.25% | -0.29% | |
| AUD | 0.07% | -0.20% | -0.15% | -0.22% | -0.10% | -0.37% | -0.40% | |
| NZD | 0.44% | 0.18% | 0.21% | 0.15% | 0.25% | 0.37% | -0.04% | |
| CHF | 0.46% | 0.20% | 0.25% | 0.18% | 0.29% | 0.40% | 0.04% |
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’s Hauser clarified that the economy is struggling to “absorb energy crisis shock” amid high inflation and supply constraints, which are raising the risk of a “stagflation-style scenario”. Hauser added that the situation would be a “nightmare” for the Australian central bank.
Market experts have also warned that energy shocks could impact the quarterly profits of some Australian companies. "With the supply shock from the energy market disruption expected to result in higher inflation and higher interest rates, an expected slowing in economic growth will create a more challenging environment for some customers," Westpac said.
On the geopolitical front, growing expectations that negotiations between the United States (US) and Iran regarding a permanent ceasefire will continue have prompted a risk-on market mood. As of writing, S&P 500 futures trade 0.2% higher to near 6,900. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.2% lower to near 98.00.
According to a Reuters report, negotiating teams from the US and Iran could return to Islamabad this week. Over the weekend, the first round of talks between both nations ended without a breakthrough as the US remained non-negotiable on Iran giving up its nuclear ambitions and the reopening of the Strait of Hormuz.
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
Sagar Dua
FXStreet
Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.
