- The Australian Dollar declines as the US Dollar remains stronger on the hawkish Fed.
- The Aussie Dollar may limit its downside due to the RBA’s hawkish stance on rates trajectory.
- The US Dollar remains stable as Fed officials delay the timing of the first interest rate cut in 2024.
The Australian Dollar (AUD) extends its losses for the third successive session on Monday. However, the AUD/USD pair may limit its downside due to the hawkish stance of the Reserve Bank of Australia (RBA). The RBA Governor Michele Bullock said during her latest press conference that the Board discussed potential rate hikes, dismissing considerations of rate cuts in the near term, as per ABC News.
The US Dollar (USD) remains stable as Federal Reserve (Fed) officials delay the timing of the first interest rate cut this year. According to the CME FedWatch Tool, investors are now pricing in nearly 65.9% odds of a Fed rate cut in September, down from 70.2% a week earlier.
Daily Digest Market Movers: Australian Dollar declines due to hawkish Fed
- The ASX 200 Index fell below 7,750 on Monday, relinquishing some of the gains from the previous session. This decline follows a weak lead from Wall Street, where Nvidia and other artificial intelligence-related chip stocks faced heavy selling after a strong run.
- The People’s Bank of China injected 50 billion Yuan via seven-day reverse repos, maintaining the reverse repo rate at 1.8%. Any change in the Chinese economy could impact the Australian market, as China and Australia are close trade partners.
- Investors are likely to be cautious ahead of this week’s Australian inflation data. Markets have significantly reduced their expectations for a RBA’s rate cut this year, with an easing not anticipated until April next year.
- On Friday, the US Composite PMI for June surpassed expectations, rising to 54.6 from May’s reading of 54.5. This figure marked the highest level since April 2022. The Manufacturing PMI increased to a reading of 51.7 from a 51.3 figure, exceeding the forecast of 51.0. Similarly, the Services PMI rose to 55.1 from 54.8 in May, beating the consensus estimate of 53.7.
- As per a Bloomberg report, Fed Bank of Richmond President Tom Barkin said on Thursday that the central bank is well-positioned with the necessary firepower for the job, but will learn a lot more over the next several months. Meanwhile, Fed Bank of Minneapolis President Neel Kashkari noted that it will probably take a year or two to get inflation back to 2%.
Technical Analysis: Australian Dollar remains below 0.6650
The Australian Dollar trades around 0.6630 on Monday. Analysis of the daily chart shows a neutral bias for the AUD/USD pair as it consolidates within a rectangle formation. The 14-day Relative Strength Index (RSI) is positioned on the 50 level, further movement may give a clear directional trend.
The AUD/USD pair may find support around the 50-day Exponential Moving Average (EMA) at 0.6612, with additional support at approximately 0.6585, marking the lower boundary of a rectangle formation.
On the upside, the AUD/USD pair may encounter resistance near the upper boundary of the rectangle formation around 0.6700. Beyond that, potential resistance levels include the high of 0.6714 observed since January.
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 weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.06% | -0.05% | -0.06% | -0.07% | -0.10% | -0.03% | -0.10% | |
| EUR | 0.05% | 0.00% | 0.00% | 0.01% | -0.03% | 0.03% | -0.05% | |
| GBP | 0.05% | 0.00% | -0.01% | 0.01% | -0.03% | 0.03% | -0.04% | |
| CAD | 0.06% | -0.01% | -0.01% | 0.00% | -0.04% | 0.03% | -0.06% | |
| AUD | 0.07% | -0.01% | -0.01% | -0.02% | -0.04% | 0.02% | -0.02% | |
| JPY | 0.10% | 0.05% | 0.04% | 0.05% | 0.05% | 0.07% | 0.02% | |
| NZD | 0.03% | -0.03% | -0.03% | -0.03% | -0.02% | -0.07% | -0.07% | |
| CHF | 0.11% | 0.04% | 0.05% | 0.04% | 0.05% | 0.01% | 0.07% |
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.
