Market Data 
- AUD/USD registers an additional boost, reaching 0.6610.
- RBA maintains its hawkish position, undergirding a strengthened AUD.
- Strong mid-tier data may fuel additional hawkish bets on the RBA hiking cycle.
The AUD/USD pair experienced an increase of 0.26% during Tuesday’s session, settling near 0.6610, above the 100 and 200-day Simple Moving Average (SMA) convergence. The Reserve Bank of Australia’s (RBA) unwavering hawkish stance and stronger mid-tier Australian economic data reported during the Asian session underpin the Aussie.
Considering the mixed Australian economic outlook and high inflation, the RBA has all the reasons to remain hawkish, which should continue benefiting the Aussie.
Daily digest market movers: Aussie finds more demand from strong confidence data
- The August Westpac consumer confidence figure came in at 85.0, beating a revised July figure of 82.7. This was the second straight improvement and the highest since February.
- Furthermore, July’s NAB business confidence came up a bit short, landing at 1 against a revised June measure of 3.
- Markets are seeing strong odds of a cut by year’s end, but if data continues coming in strong, investors might push the easing to 2025.
- On the US front, soft Producer Price Index (PPI) fueled USD weakness, which also favoured the pair’s upside.
AUD/USD technical outlook: Pair consolidates near significant resistance around 0.6610
The Relative Strength Index (RSI) hovers slightly above the neutral zone at 53, indicating a slightly bullish streak. The Moving Average Convergence Divergence (MACD) presents rising green bars.
This points out that the recent bullish recovery is taking shape, but the confirmation will be if the pair manages to consolidate above the 100 and 200-day SMA convergence near 0.6610. Support to the downside line up at 0.6600, 0.6580 and 0.6560.
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.
