Australian Dollar depreciates, while US Dollar remains steady ahead FOMC Minutes
|- The Australian Dollar moves back and forth ahead of FOMC Minutes on Wednesday.
- RBA Minutes suggested that the board had considered raising rates in May but opted to maintain a steady policy.
- The RBNZ maintained its rates at 5.5% for the seventh consecutive meeting as inflation remains above the 1-3% target band.
- FOMC Minutes are awaited on Wednesday, with traders seeking clues about the Fed policy stance.
The Australian Dollar (AUD) experienced a volatile Asian session on Wednesday. The AUD/USD pair gained ground following the appreciation of the New Zealand Dollar (NZD) after the Reserve Bank of New Zealand (RBNZ) announced its decision to maintain its Official Cash Rate (OCR) at 5.5%. Both currencies share a close relationship due to their geographical proximity and strong trade ties between Australia and New Zealand.
Investors continue to assess the outlook for the Reserve Bank of Australia (RBA) monetary policy. On Tuesday, the RBA Meeting Minutes suggested that the board had considered raising rates in May but ultimately decided to maintain a steady policy. Policymakers noted the difficulty in definitively ruling in or out future changes in the cash rate.
Australia's inflation rate was 3.6% year-over-year in Q1, down from 4.1% in the previous period but above market expectations of 3.4%. This indicates that inflation risks have somewhat increased, as highlighted in the minutes of the RBA's May policy meeting. The situation prompted the RBA to revisit discussions about a potential interest rate hike.
On the US Dollar (USD) front, traders await the release of the Minutes from the Federal Open Market Committee (FOMC) meeting held on May 1, which is due on Wednesday. They are seeking clues about the Federal Reserve’s (Fed) policy stance. The central bank maintains a cautious approach regarding inflation and the possibility of rate cuts in 2024.
Daily Digest Market Movers: Australian Dollar appreciates due to positive market sentiment
- The ASX 200 Index climbed to near 7,860 on Wednesday, led by gains in heavyweight mining stocks due to stronger metals prices. Australian shares also mirrored overnight gains on Wall Street, where the S&P 500 and Nasdaq Composite closed at new record highs of 5,321 and 16,832, respectively.
- Federal Reserve Bank of Boston President Susan Collins spoke at the event titled "Central Banking in the Post-Pandemic Financial System" on Tuesday. Collins stated that progress toward interest rate adjustment will take longer and emphasized that patience is the right policy for the Fed, per Reuters.
- Federal Reserve Governor Christopher Waller stated on Tuesday that he needs to see several more months of favorable inflation data before he would be comfortable supporting an easing in policy.
- According to the CME FedWatch Tool, the probability of the Federal Reserve implementing a 25 basis-point rate cut in September has seen a slight uptick to 50.3%, compared to 49.6% a day ago.
- Australia’s Westpac Consumer Confidence fell 0.3% month-over-month in May, compared to a 2.4% decline in April. It was the third straight month of drop but the softest pace in this sequence.
- On Monday, the Chinese Commerce Ministry announced a prohibition on General Atomics Aeronautical Systems, a US company, from engaging in import and export activities related to China. This decision comes amid ongoing trade tensions between the United States and China. Any economic change in the Chinese economy could catalyze the Australian market as both nations are close trade partners.
Technical Analysis: Australian Dollar remains above a key level of 0.6650
The Australian Dollar trades around 0.6680 on Wednesday. The analysis of the daily chart suggests a bullish bias as the AUD/USD pair consolidates within the ascending triangle with the 14-day Relative Strength Index (RSI) remaining above the 50 level.
The AUD/USD pair could test the psychological level of 0.6700. A breakthrough above this level could lead the pair to test the four-month high of 0.6714, followed by the upper limit of the ascending triangle around the level of 0.6725.
On the downside, the nine-day Exponential Moving Average (EMA) at 0.6655, acting as the immediate support, aligned with the lower boundary of the ascending triangle around the key level of 0.6650. A break below this support could push the AUD/USD pair toward the psychological level of 0.6600.
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 New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.03% | -0.24% | 0.15% | 0.14% | 0.12% | -0.31% | 0.14% | |
| EUR | -0.03% | -0.31% | 0.12% | 0.12% | 0.09% | -0.33% | 0.11% | |
| GBP | 0.27% | 0.29% | 0.40% | 0.40% | 0.37% | -0.05% | 0.39% | |
| CAD | -0.15% | -0.11% | -0.40% | 0.00% | -0.03% | -0.45% | 0.00% | |
| AUD | -0.14% | -0.11% | -0.40% | 0.00% | -0.03% | -0.45% | 0.00% | |
| JPY | -0.12% | -0.07% | -0.35% | 0.02% | 0.05% | -0.42% | -9897.76% | |
| NZD | 0.29% | 0.33% | 0.05% | 0.45% | 0.44% | 0.42% | 0.45% | |
| CHF | -0.15% | -0.11% | -0.39% | 0.00% | 0.00% | -0.03% | -0.45% |
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).
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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