- The Australian Dollar remains firmer due to the hawkish sentiment surrounding RBA’s rate trajectory.
- The Australian Dollar gains in response to the Aussie 10-year yield hitting a 21-week high of 4.59%.
- The rebound of the US Dollar could be attributed to a shift in market sentiment toward risk-off.
The Australian Dollar (AUD) continues its upward trend for the fifth consecutive session on Friday. The Australian Dollar (AUD) gains momentum against the US Dollar (USD) amid growing support for a hawkish stance from the Reserve Bank of Australia (RBA). This sentiment is strengthened by the reassessment by TD Securities, pushing back the anticipated rate cut by the RBA to February 2025 from November.
The Australian Dollar strengthened further on the back of rising yields in Australian government bonds, with the 10-year yield hitting a 21-week high of 4.59%. This surge is attributed to the recent release of Australia’s Consumer Price Index (CPI) data on Wednesday, which surpassed expectations and triggered a hawkish sentiment surrounding the RBA.
The US Dollar Index (DXY), which measures the performance of the US Dollar (USD) against six major currencies, rebounds, potentially influenced by a shift toward risk-off sentiment. However, this gain could be limited due to the downward correction in US Treasury yields, which contributed to the weakening of the Greenback.
Despite mixed preliminary data released from the United States (US) on Thursday, including higher-than-expected Core Personal Consumption Expenditures and lower-than-expected Gross Domestic Product Annualized for the first quarter, the US Dollar remained subdued.
Market attention now turns to the US Personal Consumption Expenditures (PCE) Price Index data for March, scheduled for release on Friday. This data is anticipated to draw significant focus as investors gauge its implications for inflationary pressures and potential impacts on US monetary policy.
Daily Digest Market Movers: Australian Dollar appreciates due to the hawkish RBA
- In the first quarter, the US Gross Domestic Product Annualized (Q1) expanded at a slower pace, growing by 1.6% compared to the previous reading of 3.4%. This figure fell short of market expectations, which anticipated a growth rate of 2.5%. The deceleration in GDP growth suggests potential headwinds or slowdowns in various sectors of the economy.
- US consumer prices have demonstrated resilience, with the latest data indicating that the Personal Consumption Expenditures (QoQ) Price Index for Q1 increased at a 3.7% annual rate. This surpassed both market expectations of 3.4% and the previous reading of 2.0%. The persistent upward movement in consumer prices may indicate ongoing inflationary pressures, which could influence monetary policy decisions by the Federal Reserve.
- The US Initial Jobless Claims for the week ending on April 19 experienced a significant decrease, falling by 5,000 to 207,000. This figure marks the lowest level seen in two months and surpasses both market expectations of 214,000 and the previous reading of 212,000. This unexpected decline in jobless claims indicates a strengthening labor market, suggesting reduced layoffs and potentially increased hiring activity.
- According to the CME FedWatch Tool, the likelihood of the Federal Reserve’s (Fed) interest rates remaining unchanged in the June meeting has risen to 85.2%, up from Wednesday’s 83.5%.
- Luci Ellis, the chief economist at Westpac and former Assistant Governor (Economic) at the Reserve Bank of Australia, notes that inflation slightly exceeded expectations in the March quarter. Westpac anticipates that the Board will keep interest rates unchanged in May and has adjusted their forecasted date for the first rate cut from September to November this year.
- In March, the Consumer Price Index (CPI) indicator in Australia rose to 3.5% YoY. While this figure exceeded expectations of 3.4%, it represented the highest level in four months. The uptick was primarily driven by faster increases in housing and transport prices.
- Excluding volatile items and travel, the monthly Australian CPI indicator climbed to 4.1% in March, up from a 3.9% gain in February. Despite this rise, inflation continues to remain outside the Reserve Bank of Australia’s target range of 2-3%, indicating ongoing challenges in achieving the desired level of price stability.
Technical Analysis: Australian Dollar holds position above 0.6500
The Australian Dollar trades around 0.6530 on Friday. The pair has breached into a symmetrical triangle pattern, with the 14-day Relative Strength Index (RSI) above the 50-level, supporting this bullish outlook.
The AUD/USD pair could target the pullback resistance at the level of 0.6553. A breakthrough above the latter could lead the pair to approach the psychological level of 0.6600 and aim for the triangle’s upper boundary near 0.6639.
On the downside, immediate support is expected around the psychological level of 0.6500. A break below this level may lead to further downside momentum, with the next significant support region around 0.6443, following further support at April’s low of 0.6362.
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 | 0.04% | 0.03% | -0.07% | -0.17% | 0.35% | -0.07% | 0.06% | |
| EUR | -0.03% | 0.00% | -0.08% | -0.20% | 0.34% | -0.10% | 0.05% | |
| GBP | -0.03% | -0.02% | -0.09% | -0.22% | 0.35% | -0.12% | 0.05% | |
| CAD | 0.06% | 0.07% | 0.09% | -0.13% | 0.42% | -0.01% | 0.13% | |
| AUD | 0.17% | 0.19% | 0.22% | 0.17% | 0.54% | 0.12% | 0.29% | |
| JPY | -0.36% | -0.35% | -0.34% | -0.42% | -0.54% | -0.45% | -0.30% | |
| NZD | 0.06% | 0.11% | 0.10% | 0.02% | -0.12% | 0.45% | 0.15% | |
| CHF | -0.06% | -0.05% | -0.03% | -0.13% | -0.25% | 0.30% | -0.12% |
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.
