Australian Dollar declines due to risk-off mood, downside seems limited due to hawkish RBA
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- The Australian Dollar declines despite a hawkish sentiment surrounding the RBA.
- The PBoC maintained its current interest rate at 3.35% at August’s meeting held on Tuesday.
- Fed President Neel Kashkari indicated that discussing potential US rate cuts in September is warranted.
The Australian Dollar (AUD) halts its winning streak against the US Dollar (USD) on Tuesday. However, the AUD/USD pair may appreciate following the release of the Reserve Bank of Australia's (RBA) August meeting minutes, which suggest that the cash rate could remain steady for an extended period.
The Reserve Bank of Australia considered raising rates but concluded that maintaining a steady rate better balanced the risks. RBA members agreed that a rate cut is unlikely in the short term.
The People's Bank of China (PBoC) kept its one-year and five-year Loan Prime Rates (LPRs) unchanged at 3.35% and 3.85%, respectively, in August’s meeting on Tuesday. Any change in the Chinese economy may impact Australian markets as both are close trade partners.
The US Dollar (USD) continues to face downward pressure following comments from Federal Reserve (Fed) officials, which have increased the likelihood of upcoming rate cuts by the US central bank. All eyes are now on Fed Chair Jerome Powell's upcoming speech at Jackson Hole on Friday.
Daily Digest Market Movers: Australian Dollar maintains its position due to a hawkish RBA
- Minneapolis Fed President Neel Kashkari stated on Monday that it would be appropriate to discuss potential US interest rate cuts in September due to concerns about a weakening labor market, per Reuters.
- Federal Reserve Bank of San Francisco President Mary Daly emphasized Sunday that the US central bank should take a gradual approach to reducing borrowing costs, according to the Financial Times. Additionally, Federal Reserve Bank of Chicago President Austan Goolsbee warned that central bank officials should be cautious about keeping a restrictive policy in place longer than necessary, per CNBC.
- On Friday, US Housing Starts dropped by 6.8% in July to 1.238 million units, following a 1.1% increase in June. Meanwhile, the University of Michigan’s Consumer Sentiment Index rose to 67.8 in August, showing its first increase in five months, surpassing expectations and up from 66.4 in July.
- On Thursday, US Retail Sales rose by 1.0% month-over-month in July, a significant rebound from June's 0.2% decline, according to the US Census Bureau. This figure exceeded the forecasted increase of 0.3%. Additionally, Initial Jobless Claims for the week ending August 9 came in at 227,000, better than the anticipated 235,000 and a decrease from the previous week's 234,000.
- US headline Consumer Price Index (CPI) rose 2.9% year-over-year in July, slightly down from the 3% increase in June and below market expectations. The Core CPI, which excludes food and energy, climbed 3.2% year-over-year, a slight decrease from the 3.3% rise in June but aligned with market forecasts.
Technical Analysis: Australian Dollar hovers 0.6750
The Australian Dollar trades around 0.6730 on Tuesday. According to daily chart analysis, the AUD/USD pair is trending upwards within an ascending channel, indicating a bullish bias. Furthermore, the 14-day Relative Strength Index (RSI) is appreciating toward the 70 mark, reinforcing the ongoing bullish momentum.
On the upside, the AUD/USD pair could aim for the area near the upper boundary of the ascending channel at the 0.6760 level. A breakout above the ascending channel could push the pair toward its seven-month high of 0.6798, which was reached on July 11.
For support, the nine-day Exponential Moving Average (EMA) at 0.6648 appears as a key support level around the lower boundary of the ascending channel. A drop below this level could see the pair test the throwback level at 0.6575. If the pair falls below this support zone, it could indicate a bearish bias, potentially leading it toward the throwback level at 0.6470.
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 weakest against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.08% | 0.08% | 0.24% | -0.01% | 0.16% | -0.41% | -0.07% | |
| EUR | -0.08% | -0.00% | 0.18% | -0.08% | 0.10% | -0.18% | -0.15% | |
| GBP | -0.08% | 0.00% | 0.17% | -0.05% | 0.10% | -0.18% | -0.16% | |
| JPY | -0.24% | -0.18% | -0.17% | -0.25% | -0.09% | -0.37% | -0.34% | |
| CAD | 0.01% | 0.08% | 0.05% | 0.25% | 0.16% | -0.10% | -0.09% | |
| AUD | -0.16% | -0.10% | -0.10% | 0.09% | -0.16% | -0.28% | -0.27% | |
| NZD | 0.41% | 0.18% | 0.18% | 0.37% | 0.10% | 0.28% | 0.00% | |
| CHF | 0.07% | 0.15% | 0.16% | 0.34% | 0.09% | 0.27% | -0.01% |
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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