- The Australian Dollar rises as positive market sentiment favors the risk-sensitive currencies.
- The Australian Dollar cheered the hawkish sentiment surrounding the RBA despite the weaker Aussie Trade Balance and Building Permits.
- The US Dollar faced a challenge as Fed Chair Powell dismissed the likelihood of a further rate hike.
The Australian Dollar (AUD) extends its gains on Thursday despite the weaker-than-expected Trade Balance and Building Permits data released by the Australian Bureau of Statistics. The AUD/USD pair receives support from the prevailing positive market sentiment after dovish remarks from the Federal Reserve Chairman Jerome Powell on Wednesday.
The Australian Dollar advances due to the hawkish sentiment surrounding the Reserve Bank of Australia’s (RBA) maintaining higher interest rates in 2024. The higher-than-expected domestic inflation data released last week has raised expectations that the RBA may delay interest rate cuts.
The US Dollar Index (DXY), which gauges the performance of the US Dollar (USD) against six major currencies, remains under pressure following the dovish remarks from Federal Reserve Chairman Jerome Powell after the interest rate decision on Wednesday. Powell dismissed the likelihood of a further rate hike, contributing to pressure for the US Dollar (USD). As expected, the US Federal Reserve (Fed) decided to maintain interest rates at 5.25%-5.50% in May’s meeting.
Traders are likely awaiting weekly Initial Jobless Claims, Nonfarm Productivity, and Factory Orders from the United States (US) on Thursday. These releases will likely provide further insights into the state of the United States (US) economy.
Daily Digest Market Movers: Australian Dollar appreciates due to improved risk appetite
- Australia’s Trade Balance (MoM) posted a surplus of 5,024 million in April, against the market anticipation of an increase to 7,370 million from the previous 7,370 million. Additionally, Australian Building Permits rose by 1.9%, falling short of the expected 3.0% in March. The February’s reading was -1.9%.
- The ASX 200 Index saw a modest increase on Thursday following the uptick in heavyweight financial firms, recovering some losses recorded Wednesday. This could be attributed to the positive market sentiment after Fed Chair Jerome Powell dismissed the chances of any further rate hike during the Federal Open Market Committee (FOMC) conference on Wednesday.
- Federal Reserve Chairman Jerome Powell highlighted that progress on inflation has recently stalled, suggesting that it would take more time than previously anticipated before the Fed could confidently expect inflation to approach its 2% target. Powell mentioned that if robust hiring persisted and inflation remained stagnant, it would justify delaying rate cuts.
- The ADP US Employment Change reported that private businesses added 192,000 workers to their payrolls in April, surpassing the expected increase of 175,000 and 208,000 prior.
- The ISM US Manufacturing PMI fell to 49.2 in April from March’s 50.3, against the market expectations of a stall. The data indicated a contraction in the US manufacturing sector, failing to sustain the momentum observed in the previous month, which marked the first expansion in 16 months.
- According to the Financial Review, ANZ predicts the Reserve Bank of Australia will start reducing interest rates in November, spurred by last week’s inflation data surpassing expectations. Likewise, Commonwealth Bank, Australia’s largest mortgage lender, has revised its forecast for the RBA’s first interest rate cut timing, now projecting a single cut in November.
- According to the CME FedWatch Tool, the likelihood of the Federal Reserve maintaining interest rates at their current level during the June meeting has risen to 91.0%, climbing from 83.5% a week ago.
Technical Analysis: Australian Dollar moves above 0.6500 back into the triangle
The Australian Dollar trades around 0.6530 on Thursday. The pair has re-entered the symmetrical triangle pattern. Additionally, the 14-day Relative Strength Index (RSI) is above the 50-level, indicating a bullish bias.
The AUD/USD pair might challenge the upper boundary, situated around the level of 0.6580, followed by the psychological level of 0.6600. A breakthrough above this level could lead the pair to explore the region around March’s high of 0.6667.
On the downside, the AUD/USD pair could potentially move toward the lower boundary of the symmetrical triangle around the nine-day Exponential Moving Average (EMA) at 0.6509. A break below the latter could exert pressure on the pair to test the throwback support at the 0.6480 level.
AUD/USD: Daily Chart
Australian Dollar price today
The table below shows the percentage change of the Australian Dollar (AUD) against listed major currencies today. The Australian Dollar was the strongest against the Japanese Yen.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | 0.03% | 0.07% | 0.03% | 0.05% | 0.17% | 0.08% | 0.03% | |
EUR | -0.02% | 0.04% | 0.00% | 0.02% | 0.13% | 0.05% | 0.00% | |
GBP | -0.07% | -0.03% | -0.03% | -0.02% | 0.10% | -0.01% | -0.01% | |
CAD | -0.03% | 0.00% | 0.04% | 0.01% | 0.12% | 0.03% | 0.00% | |
AUD | -0.05% | 0.00% | 0.02% | 0.00% | 0.13% | 0.02% | 0.00% | |
JPY | -0.20% | -0.16% | -0.14% | -0.15% | -0.16% | -0.14% | -0.15% | |
NZD | -0.08% | -0.03% | 0.00% | -0.03% | -0.02% | 0.07% | -0.02% | |
CHF | -0.04% | 0.00% | 0.04% | 0.00% | 0.02% | 0.10% | 0.05% |
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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