- The Australian Dollar gains ground due to expectations that the RBA might lag in the global rate-cutting cycle.
- Australia’s 10-year government bond yield rises to near 4.4% as foreign investors seek protection from political uncertainties.
- Fed Chair Powell is scheduled to deliver “The Semiannual Monetary Policy Report” to the US Congress on Tuesday.
The Australian Dollar (AUD) recovers its recent losses, trading near its six-month high of 0.6761 on Tuesday. This upside of the AUD is attributed to the rising expectations that the Reserve Bank of Australia (RBA) might lag in the global rate-cutting cycle or potentially raise interest rates again due to strong inflation data for May.
Australia’s 10-year government bond yield remained steady at around 4.4%, as high yields attract foreign capital from investors seeking protection from political uncertainties in the US and Europe. The RBA’s June Meeting Minutes highlighted policymakers’ emphasis on the need to stay vigilant regarding inflation risks. They noted that a significant rise in prices could necessitate substantially higher interest rates.
The AUD/USD pair gains ground as the US Dollar (USD) struggles due to soft US employment data, leading traders to speculate that the Federal Reserve (Fed) might reduce interest rates sooner rather than later. The CME’s FedWatch Tool indicates that rate markets price in a 76.2% probability of a rate cut in September, up from 65.5% just a week earlier.
Daily Digest Market Movers: Australian Dollar improves due to hawkish sentiment surrounding RBA
- Australia’s Westpac Consumer Confidence dropped by 1.1% in July, reversing the 1.7% increase seen in June. This marks the fifth decline in 2024, driven by ongoing worries about high inflation, elevated interest rates, and a sluggish economy.
- US Nonfarm Payrolls (NFP) increased by 206,000 in June, following a rise of 218,000 in May. This figure surpassed the market expectation of 190,000.
- The US Unemployment Rate edged up to 4.1% in June from 4.0% in May. Meanwhile, Average Hourly Earnings decreased to 3.9% year-over-year in June from the previous reading of 4.1%, aligning with market expectations.
- According to the Australian Bureau of Statistics on Thursday, Australia’s trade surplus for May was A$5,773 million ($3,868 million), lower than the expected A$6,678 million and down from the previous reading of A$6,548 million.
- Australia’s Retail Sales, a measure of the country’s consumer spending, increased by 0.6% MoM in May, up from the previous month’s 0.1% rise. This figure exceeded market expectations of a 0.2% increase.
- Federal Reserve Bank of Chicago President Austan Goolsbee stated on BBC Radio on Wednesday that bringing inflation back to 2% will take time and that more economic data are needed. However, on Tuesday, Fed Chair Jerome Powell said that the central bank is getting back on the disinflationary path, per Reuters.
Technical Analysis: Australian Dollar holds ground around 0.6750
The Australian Dollar trades around 0.6740 on Tuesday. The daily chart analysis shows that the AUD/USD pair consolidates within an ascending channel, indicating a bullish bias. Additionally, the 14-day Relative Strength Index (RSI) remains above the 50 level, confirming the bullish momentum.
The AUD/USD pair may test the upper boundary of the ascending channel around 0.6765. A breakthrough above this level could lead the pair to explore the region around the psychological level of 0.6800.
On the downside, the AUD/USD pair may navigate around the lower boundary of the ascending channel at 0.6665, with further support around the 50-day Exponential Moving Average (EMA) at 0.6642.
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 strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.02% | 0.02% | 0.08% | -0.00% | -0.07% | -0.02% | 0.07% | |
| EUR | 0.02% | 0.03% | 0.10% | 0.00% | -0.05% | 0.00% | 0.09% | |
| GBP | -0.02% | -0.03% | 0.06% | -0.02% | -0.06% | -0.03% | 0.05% | |
| JPY | -0.08% | -0.10% | -0.06% | -0.09% | -0.16% | -0.12% | -0.03% | |
| CAD | 0.00% | -0.00% | 0.02% | 0.09% | -0.08% | 0.00% | 0.06% | |
| AUD | 0.07% | 0.05% | 0.06% | 0.16% | 0.08% | 0.04% | 0.10% | |
| NZD | 0.02% | -0.01% | 0.03% | 0.12% | -0.00% | -0.04% | 0.08% | |
| CHF | -0.07% | -0.09% | -0.05% | 0.03% | -0.06% | -0.10% | -0.08% |
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.
