- Australian Dollar continues to move on a downward trajectory.
- Australia’s central bank mentioned in MPS that inflation is more persistent than expected.
- Fed Chair Powell expressed concern that the policy measures in place may not be restrictive enough.
The Australian Dollar (AUD) embraces its losing streak that commenced on Monday. The AUD/USD pair faces downward pressure following the hawkish remarks made by US Federal Reserve (Fed) Chair Jerome Powell on Thursday. Powell’s comments triggered an upward surge in the US Dollar (USD) and US Treasury yields, impacting the pair.
Australia’s central bank issued its Monetary Policy Statement (MPS) on Friday, indicating that inflation in the country has likely surpassed its peak. However, the statement notes that inflation continues to be elevated and is proving to be more persistent than initially expected a few months ago.
The Reserve Bank of Australia’s (RBA) main focus is to bring inflation back to its target. After deliberation, they contemplated a pause in November but ultimately decided that a rate hike would offer greater assurance in addressing inflation concerns. The potential for additional upward surprises to inflation exists, driven by both domestic and external factors.
However, the RBA board acknowledges the financial challenges many households are currently experiencing, with budgets under significant pressure. The Reserve Bank of Australia (RBA) has raised its forecasts for both inflation and GDP growth, while also adjusting downward the projections for unemployment and wages.
The RBA struck a dovish tone at their last meeting despite delivering a 25 basis point rate hike. RBA adopts a data-dependent strategy in response to persistent challenges from inflation and a slowing Australian economy.
Fed Chair Powell is concerned they might not have implemented a sufficiently restrictive policy to bring inflation down to the 2% target over time. However, there is a widespread belief in the markets that the Fed has concluded its tightening cycle.
Moreover, on Thursday, the US weekly Initial Jobless Claims for the week ending November 4 turned out to be lower than what the market had anticipated. This outcome can potentially strengthen the belief in a robust labor market in the United States (US), offering additional support for the Greenback.
Investors await the preliminary US Michigan Consumer Sentiment Index for November, along with the UoM 5-year Consumer Inflation Expectation, seeking additional momentum for traders of the AUD/USD pair.
Daily Digest Market Movers: Australian Dollar continues to move on a downward trajectory for the fifth successive day
- RBA increased the Official Cash Rate (OCR) from 4.10% to a 12-year high of 4.35%, responding to the latest Monthly Consumer Price Index (YoY) for September, which indicated a notable increase of 5.6% compared to the expected 5.4% growth.
- Australia’s TD Securities Inflation (YoY) eased at 5.1% in September from 5.7% prior.
- Australia’s Retail Sales grew 0.2% in the third quarter after contracting by 0.6% in the previous quarter.
- Economists at the National Australia Bank (NAB) anticipate another 25 basis points hike in February following the Q4 inflation data. Additionally, NAB believes that rate cuts are unlikely to commence until November 2024.
- China’s Consumer Price Index (CPI) witnessed an annual decline of 0.2% in October, compared to the expected 0.1% decrease. The monthly CPI dropped by 0.1%, contrasting with the earlier 0.2% growth.
- Pan Gongsheng, the Governor of the People’s Bank of China (PBOC), expressed optimism on Wednesday, saying that China’s economy is on a positive trajectory and is anticipated to achieve the 5% growth target.
- Additionally, the International Monetary Fund (IMF) has adjusted its outlook for China’s Gross Domestic Product (GDP), now projecting a 5.4% growth rate in 2023, up from the initial forecast of 5.0%, and 4.6% in 2024, surpassing the previous estimate of 4.2%.
- Fed Governor Michelle Bowman reinforced the opinion that the US Fed is contemplating future increases in short-term interest rates. Moreover, Neil Kashkari, President of the Minnesota Fed, questioned whether the central bank had raised rates sufficiently. Kashkari cited the economy’s resilience as a factor influencing his perspective.
- US weekly Initial Jobless Claims for the week ending November 4 totaled 217K, slightly below the market forecast of 218K and the previous week’s figure of 220K.
- The US Bureau of Labor Statistics recently unveiled the Nonfarm Payrolls (NFP) data for October, disclosing a figure of a 150K increase in jobs. This missed the expected 180K and marked a substantial drop from September’s 297K.
Technical Analysis: Australian Dollar drops to 0.6350, aiming for the previous week’s low
The Australian Dollar hovers around the crucial support level of 0.6350 on Friday. If there’s a clear break below this level, it may lead the AUD/USD pair on a downward trajectory, aiming for the previous week’s low at 0.6314. On the upside, the initial resistance is marked by the 50-day Exponential Moving Average (EMA) at 0.6408, closely followed by the 23.6% Fibonacci retracement at 0.6415, and then the psychological barrier at 0.6500.
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 Canadian Dollar.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | -0.05% | -0.05% | -0.07% | 0.00% | -0.05% | -0.04% | 0.02% | |
EUR | 0.05% | 0.00% | -0.01% | 0.04% | 0.01% | 0.01% | 0.08% | |
GBP | 0.05% | -0.01% | -0.04% | 0.05% | 0.00% | 0.02% | 0.06% | |
CAD | 0.06% | 0.03% | 0.03% | 0.09% | 0.04% | 0.04% | 0.10% | |
AUD | -0.01% | -0.07% | -0.06% | -0.10% | -0.05% | -0.07% | 0.02% | |
JPY | 0.05% | -0.02% | -0.02% | -0.03% | 0.05% | -0.01% | 0.06% | |
NZD | 0.04% | -0.01% | 0.00% | -0.04% | 0.05% | -0.01% | 0.06% | |
CHF | -0.02% | -0.07% | -0.07% | -0.09% | -0.01% | -0.06% | -0.06% |
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).
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.
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