Australian Dollar appreciates following a hawkish speech by RBA Governor Bullock
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- The Australian Dollar remains steady after the RBA interest rate decision.
- The RBA maintained the Official Cash Rate at 4.35% for the sixth consecutive meeting.
- The US Dollar faced challenges as recent downbeat labor data fueled higher odds of a Fed rate cut in September.
The Australian Dollar (AUD) remains stronger following the Reserve Bank of Australia's (RBA) monetary policy decision on Tuesday. The RBA maintained the Official Cash Rate (OCR) at 4.35% for the sixth time. After the central bank's policy decision, RBA Governor Michele Bullock addressed the press conference, emphasizing the need to stay on course with inflation. Bullock highlighted the ongoing risk that inflation might take too long to return to target and noted that interest rates might need to remain higher for an extended period. Bullock stated that a near-term reduction in the cash rate does not align with their current strategy.
The AUD faced challenges against the US Dollar (USD) due to central banks’ rapid policy adjustments and increasing fears of a hard landing for the US economy. Additionally, the second-quarter inflation data has diminished expectations for another RBA rate hike. Markets estimate an RBA rate cut in November, a move anticipated much earlier than previously forecasted for April next year.
The US Dollar loses ground as expectations grow for a 50-basis point (bps) interest rate cut by the US Federal Reserve (Fed) in September. The CME FedWatch tool indicates a 74.5% probability of this relatively larger cut occurring at the September meeting, a significant increase from the 11.4% chance reported a week earlier.
Daily Digest Market Movers: Australian Dollar advances ahead of RBA policy decision
- Federal Reserve Bank of San Francisco President Mary Daly expressed increased confidence on Monday that US inflation is moving towards the Fed's 2% target, according to Reuters. Daly noted that “risks to the Fed's mandates are becoming more balanced and that there is openness to the possibility of cutting rates in upcoming meetings.”
- Chicago Fed President Austan Goolsbee stated on Monday that the US central bank is prepared to act if economic or financial conditions worsen. Goolsbee emphasized, "We're forward-looking about it, and so if the conditions collectively start coming in like that on the through line, there’s deterioration on any of those parts, we’re going to fix it.” according to Reuters.
- US ISM Services PMI rose to 51.4 in July, from the previous reading of 48.8 reading. The index has exceeded the market expectation of 51.0 reading.
- The Judo Bank Australia Composite PMI dropped to 49.9 in July from 50.2 in June, falling below the neutral 50 mark for the first time since January. The Services PMI decreased to 50.4 in July from 51.8 in June. While this represents the sixth consecutive month of expansion in services activity, the growth rate was marginal and the slowest observed in this sequence.
- US Nonfarm Payrolls (NFP) increased by 114K in July from the previous month of 179K (revised down from 206K). This figure came in weaker than the expectation of 175K, data showed on Friday.
- US Average Hourly Earnings eased to 0.2% month-over-month in the same reported period, below the market consensus of 0.3%. On an annual basis, the figure decreased to 3.6% from the previous reading of 3.8%.
- On Tuesday, China's Caixin Services Purchasing Managers Index (PMI) rose to 52.1 in July, from June's 51.2 reading. The index has exceeded the market expectation of a 51.4 reading. Last week, Caixin Manufacturing PMI posted a reading of 49.8 for July, falling short of the expected reading of 51.5 and the previous reading of 51.8. Since both nations are close trade partners, volatility in the Chinese economy can significantly impact the Australian market.
Technical Analysis: Australian Dollar moves above 0.6500
The Australian Dollar trades around 0.6520 on Tuesday. The daily chart analysis shows that the AUD/USD pair has breached above the descending channel, indicating a weakening of a bearish bias. The 14-day Relative Strength Index (RSI) is slightly up from the oversold 30 level, which suggests a potential for more upward correction.
The AUD/USD pair could find immediate support around the throwback support of 0.6470 level, followed by the lower boundary of the descending channel around the level of 0.6450
On the upside, resistance is first encountered at the nine-day Exponential Moving Average (EMA) at 0.6540, followed by the "throwback support turned resistance" at 0.6575 level. A breakout above the latter could propel the AUD/USD pair toward a six-month high of 0.6798.
AUD/USD: Daily Chart
Australian Dollar PRICE Today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.01% | 0.02% | 1.11% | -0.05% | -0.13% | 0.26% | 0.47% | |
| EUR | -0.01% | 0.04% | 1.09% | -0.07% | -0.17% | 0.17% | 0.47% | |
| GBP | -0.02% | -0.04% | 1.06% | -0.08% | -0.19% | 0.15% | 0.39% | |
| JPY | -1.11% | -1.09% | -1.06% | -1.17% | -1.23% | -0.92% | -0.51% | |
| CAD | 0.05% | 0.07% | 0.08% | 1.17% | -0.09% | 0.25% | 0.48% | |
| AUD | 0.13% | 0.17% | 0.19% | 1.23% | 0.09% | 0.35% | 0.58% | |
| NZD | -0.26% | -0.17% | -0.15% | 0.92% | -0.25% | -0.35% | 0.28% | |
| CHF | -0.47% | -0.47% | -0.39% | 0.51% | -0.48% | -0.58% | -0.28% |
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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (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.
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