Australian Dollar improves as strong inflation prompts RBA to maintain a hawkish stance
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- The Australian Dollar gains ground due to expectations that the RBA might lag in the global rate-cutting cycle.
- Australia’s 10-year government bond yield rises to near 4.4% as foreign investors seek protection from political uncertainties.
- Fed Chair Powell will deliver “The Semiannual Monetary Policy Report" to the US Congress on Tuesday.
The Australian Dollar (AUD) recovers its recent losses, trading near its six-month high of 0.6761 on Tuesday. This upside of the AUD is attributed to the rising expectations that the Reserve Bank of Australia (RBA) might lag in the global rate-cutting cycle or raise interest rates again due to strong inflation data for May.
Australia’s 10-year government bond yield remained steady at around 4.4%, as high yields attract foreign capital from investors seeking protection from political uncertainties in the US and Europe. The RBA’s June Meeting Minutes highlighted policymakers' emphasis on the need to stay vigilant regarding inflation risks. They noted that a significant rise in prices could necessitate substantially higher interest rates.
The AUD/USD pair gains ground as the US Dollar (USD) struggles due to soft US employment data, leading traders to speculate that the Federal Reserve (Fed) might reduce interest rates sooner rather than later. The CME's FedWatch Tool indicates that rate markets price in a 76.2% probability of a rate cut in September, up from 65.5% just a week earlier.
Federal Reserve Chairman Jerome Powell will deliver his testimony on "The Semiannual Monetary Policy Report" to the US Congress on Tuesday. Powell could provide a broad overview of the economy and monetary policy, with his prepared remarks being published ahead of his appearance on Capitol Hill.
Daily Digest Market Movers: Australian Dollar improves due to hawkish sentiment surrounding RBA
- Australia's Westpac Consumer Confidence dropped by 1.1% in July, reversing the 1.7% increase seen in June. This marks the fifth decline in 2024, driven by ongoing worries about high inflation, elevated interest rates, and a sluggish economy.
- US Nonfarm Payrolls (NFP) increased by 206,000 in June, following a rise of 218,000 in May. This figure surpassed the market expectation of 190,000.
- The US Unemployment Rate edged up to 4.1% in June from 4.0% in May. Meanwhile, Average Hourly Earnings decreased to 3.9% year-over-year in June from the previous reading of 4.1%, aligning with market expectations.
- According to the Australian Bureau of Statistics on Thursday, Australia's trade surplus for May was A$5,773 million ($3,868 million), lower than the expected A$6,678 million and down from the previous reading of A$6,548 million.
- Australia's Retail Sales, a measure of the country's consumer spending, increased by 0.6% MoM in May, up from the previous month's 0.1% rise. This figure exceeded market expectations of a 0.2% increase.
- Federal Reserve Bank of Chicago President Austan Goolsbee stated on BBC Radio on Wednesday that bringing inflation back to 2% will take time and that more economic data are needed. However, on Tuesday, Fed Chair Jerome Powell said that the central bank is getting back on the disinflationary path, per Reuters.
Technical Analysis: Australian Dollar holds ground around 0.6750
The Australian Dollar trades around 0.6740 on Tuesday. The daily chart analysis shows that the AUD/USD pair consolidates within an ascending channel, indicating a bullish bias. Additionally, the 14-day Relative Strength Index (RSI) remains above the 50 level, confirming the bullish momentum.
The AUD/USD pair may test the upper boundary of the ascending channel around 0.6765. A breakthrough above this level could lead the pair to explore the region around the psychological level of 0.6800.
On the downside, the AUD/USD pair may navigate around the lower boundary of the ascending channel at 0.6665, with further support around the 50-day Exponential Moving Average (EMA) at 0.6642.
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 | -0.04% | 0.00% | 0.10% | -0.03% | -0.09% | 0.00% | 0.12% | |
| EUR | 0.04% | 0.02% | 0.12% | -0.01% | -0.05% | 0.04% | 0.17% | |
| GBP | -0.01% | -0.02% | 0.10% | -0.03% | -0.07% | 0.01% | 0.12% | |
| JPY | -0.10% | -0.12% | -0.10% | -0.13% | -0.19% | -0.11% | 0.01% | |
| CAD | 0.03% | 0.00% | 0.03% | 0.13% | -0.08% | 0.05% | 0.14% | |
| AUD | 0.09% | 0.05% | 0.07% | 0.19% | 0.08% | 0.08% | 0.17% | |
| NZD | -0.00% | -0.04% | -0.01% | 0.11% | -0.05% | -0.08% | 0.11% | |
| CHF | -0.12% | -0.17% | -0.12% | -0.01% | -0.14% | -0.17% | -0.11% |
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).
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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