- The Australian Dollar appreciates, possibly due to improved risk sentiment amid de-escalated tensions in the Middle East.
- The Australian currency could face challenges due to the market sentiment of RBA cutting policy rates before the year’s end.
- The US Dollar may rebound as comments from Federal Reserve officials suggest a hawkish stance on monetary policy tightening.
The Australian Dollar (AUD) broke its two-day losing streak on Monday amid risk-on sentiment, supported by indications of de-escalating geopolitical tensions. An Iranian official’s statement suggesting no immediate plans for retaliation against Israeli airstrikes contributes to the improved sentiment.
The Australian Dollar may encounter challenges ahead, particularly as domestic inflation continues to moderate, aligning with the Reserve Bank of Australia’s (RBA) latest forecasts. Furthermore, the persistently tight labor market could lead to calls for an RBA rate reduction before the year’s end.
The US Dollar Index (DXY), which gauges the US Dollar (USD) against six major currencies, faces pressure despite the increase in US Treasury yields. However, the potential downside for the USD pair could be restrained by comments from Federal Reserve (Fed) officials suggesting a move toward a more hawkish stance.
Daily Digest Market Movers: Australian Dollar appreciates on improved risk sentiment
- The People’s Bank of China maintained its Loan Prime Rates (LPR) at 3.45% on Monday. The LPR serves as a crucial benchmark rate for Chinese banks when determining the interest rates for loans offered to their clients. Given the significant economic ties between China and Australia, any changes in Chinese monetary policy have the potential to impact the Australian market.
- The Chinese Ministry of Commerce has announced a new tariff on US goods. Specifically, China has imposed a duty of 43.5% on imports of propionic acid from the United States. This chemical is extensively utilized in various sectors, including food, feed, pesticides, and medical applications, as per Reuters report.
- The Australian Dollar gains ground with no significant geopolitical developments over the weekend. As per “The Guardian” report, Antony Blinken, the US Secretary of State, urged calm after an Iranian official stated that there is no immediate plan for retaliation to the reported Israeli missile strike. Blinken made these remarks while addressing the press on Friday after the G7 meeting of foreign ministers in Capri, Italy.
- Chicago Fed President Austan Goolsbee remarked on Friday that progress on inflation had “stalled,” and the Federal Reserve’s current restrictive monetary policy is appropriate. Meanwhile, Atlanta Fed President Raphael Bostic stated that the US central bank would refrain from cutting interest rates until the end of the year.
- Traders are expected to closely monitor upcoming Purchasing Managers Index (PMI) data from both countries on Tuesday, followed by the Australian Consumer Price Index (CPI) data on Wednesday and the US Gross Domestic Product Annualized on Thursday.
Technical Analysis: Australian Dollar remains below the major barrier of 0.6450
The Australian Dollar trades around 0.6440 on Monday. The AUD/USD pair remains below the pullback resistance of around 0.6456, along with the 14-day Relative Strength Index (RSI) remaining below the 50-level, suggesting a bearish sentiment. Notable support is identified at the psychological level of 0.6400. A break below the latter could put pressure on the AUD/USD pair to revisit the previous week’s low of 0.6362, followed by the major level of 0.6350.
On the upside, immediate resistance for the AUD/USD pair is anticipated at the major level of 0.6450, followed by the 14-day Exponential Moving Average (EMA) at 0.6476. A break above this level could lead the pair to reach the psychological level of 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 strongest against the Swiss Franc.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | -0.05% | -0.09% | -0.10% | -0.21% | 0.04% | -0.26% | 0.08% | |
EUR | 0.05% | -0.04% | -0.05% | -0.14% | 0.09% | -0.20% | 0.13% | |
GBP | 0.08% | 0.04% | -0.01% | -0.11% | 0.13% | -0.17% | 0.17% | |
CAD | 0.10% | 0.05% | 0.01% | -0.11% | 0.14% | -0.16% | 0.18% | |
AUD | 0.21% | 0.16% | 0.11% | 0.11% | 0.24% | -0.06% | 0.29% | |
JPY | -0.04% | -0.09% | -0.13% | -0.15% | -0.25% | -0.30% | 0.04% | |
NZD | 0.25% | 0.21% | 0.17% | 0.16% | 0.05% | 0.29% | 0.37% | |
CHF | -0.08% | -0.14% | -0.17% | -0.18% | -0.28% | -0.03% | -0.33% |
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.
Credit: Source link