Market Data 
- The Australian Dollar appreciates due to the improved risk sentiment on Wednesday.
- The Australian government is targeting headline inflation and seeking to ease cost-of-living pressures by earmarking billions in funding.
- The US Dollar lost ground as investors digested higher-than-expected US PPI data.
The Australian Dollar (AUD) remains steady with a positive sentiment despite the lower-than-expected Wage Price Index (Q1) released on Wednesday by the Australian Bureau of Statistics. This index serves as an indicator of labor cost inflation. The appreciation of the Aussie Dollar could be attributed to the improved risk appetite.
The Australian Budget for 2024-25 has returned to a deficit after recording a surplus of $9.3 billion in 2023-24. The Australian government aims to tackle headline inflation and alleviate the cost of living pressures by allocating billions to reduce energy bills and rent, alongside initiatives to lower income taxes.
The US Dollar Index (DXY), which gauges the performance of the US Dollar (USD) against six major currencies, is experiencing continued losses for the second session. Investors have digested higher-than-expected US Producer Price Index data for April while awaiting the Consumer Price Index report scheduled for Wednesday.
Federal Reserve Chair Jerome Powell has anticipated a continued decline in inflation. Powell expressed less confidence in the disinflation outlook compared to previous assessments. He also highlighted that Gross Domestic Product (GDP) growth is expected to reach 2% or higher, attributing this positive forecast to the strength of the labor market.
Daily Digest Market Movers: Australian Dollar appreciates due to improved risk appetite
- Australia’s Wage Price Index (QoQ) showed a 0.8% increase in the first quarter, falling slightly below the anticipated rise of 0.9%. On a year-over-year basis, it saw a 4.1% increase, also slightly lower than the expected 4.2% rise.
- The US Bureau of Labor Statistics (BLS) reported that the Producer Price Index (PPI) increased by 0.5% month-over-month in April, surpassing the forecast of 0.3% and rebounding from March’s contraction of -0.1%. Additionally, the Core PPI, which excludes volatile food and energy prices, also surged by 0.5% MoM, exceeding projections of 0.2%.
- A Reuters report cited Treasurer of Australia Jim Chalmers, expressing his expectation that the current headline inflation rate of 3.6% will return to the Reserve Bank of Australia’s target range of 2-3% by the end of the year. In the event that this scenario unfolds, it is likely that the central bank will consider cutting interest rates earlier than markets had anticipated.
- Australia’s Treasury announced on Sunday that they forecasted that inflation could re-enter the Reserve Bank of Australia’s (RBA) target range by the end of 2024. In their December outlook, officials predicted that CPI inflation would decrease to 3.75% by mid-2024 and 2.75% by mid-2025, aligning it with the RBA’s target range.
- Federal Reserve Bank of New York conducted a consumer sentiment survey, indicating that US consumers anticipate a broad acceleration in inflation over the next year, with expectations reaching 3.3%. This marks an increase from the 3.0% figure reported in March for consumer one-year inflation expectations.
- According to Reuters, Fed Vice Chair Philip Jefferson advocated for the retention of current interest rates until signs of inflation easing become more apparent.
Technical Analysis: Australian Dollar maintains its position above 0.6600
The Australian Dollar trades around 0.6630 on Wednesday. The AUD/USD pair is consolidating within a symmetrical triangle pattern. Moreover, the 14-day Relative Strength Index (RSI) indicates a bullish bias, remaining above the 50 level.
The AUD/USD pair may challenge the upper boundary near the swing area at 0.6650. A breakthrough above this level could lead the pair to revisit March’s high at 0.6667, with further upward momentum possibly targeting the psychological level of 0.6700.
On the downside, the psychological level of 0.6600 appears as the immediate support, followed by the 14-day Exponential Moving Average (EMA) at 0.6585. If the pair breaks below this EMA, it might face additional selling pressure, potentially moving toward the region around the lower boundary of the symmetrical triangle around the support level of 0.6465.
AUD/USD: Daily Chart
Australian Dollar price this week
The table below shows the percentage change of the Australian Dollar (AUD) against listed major currencies this week. The Australian Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.52% | -0.61% | -0.31% | -0.74% | 0.37% | -0.67% | -0.10% | |
| EUR | 0.53% | -0.09% | 0.23% | -0.21% | 0.88% | -0.13% | 0.45% | |
| GBP | 0.61% | 0.09% | 0.32% | -0.12% | 0.99% | -0.06% | 0.54% | |
| CAD | 0.30% | -0.25% | -0.32% | -0.44% | 0.66% | -0.37% | 0.22% | |
| AUD | 0.73% | 0.21% | 0.12% | 0.43% | 1.10% | 0.08% | 0.66% | |
| JPY | -0.37% | -0.91% | -0.99% | -0.65% | -1.07% | -1.05% | -0.44% | |
| NZD | 0.66% | 0.13% | 0.04% | 0.36% | -0.08% | 1.02% | 0.58% | |
| CHF | 0.07% | -0.45% | -0.54% | -0.22% | -0.66% | 0.44% | -0.58% |
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.
