Australian Dollar moves sideways as US Dollar remains steady ahead of FOMC Minutes
|- The Australian Dollar may advance its gains as RBA Minutes indicated current cash rates for longer.
- RBA’s August Meeting Minutes suggested that a rate cut is unlikely soon.
- The US Dollar may receive support from caution ahead of the FOMC Minutes release on Wednesday.
The Australian Dollar (AUD) holds ground, aiming to extend its gains against the US Dollar (USD) on Wednesday. The strength of the AUD/USD pair is reinforced after the Reserve Bank of Australia's (RBA) August Meeting Minutes indicated that the cash rate may remain unchanged for an extended period.
The RBA Minutes also showed that the board had considered a rate hike earlier this month before ultimately deciding that maintaining current rates would better balance the risks. Additionally, RBA members agreed that a rate cut is unlikely in the near future.
The US Dollar (USD) attempts to halt its losing streak as traders turn cautious ahead of the release of the FOMC Minutes on Wednesday. Furthermore, traders await Fed Chair Jerome Powell's upcoming speech at Jackson Hole on Friday.
Daily Digest Market Movers: Australian Dollar remains solid following RBA Minutes
- CME FedWatch Tool suggests that the markets are now pricing in a nearly 67.5% odds of a 25 basis points (bps) Fed rate cut in its September meeting, down from 76% a day ago. The probability of a 50 basis points rate cut fell to 32.5% from 53.0% a week earlier.
- Federal Reserve (Fed) Governor Michelle Bowman expressed caution on Tuesday about making any policy changes, citing ongoing upside risks to inflation. Bowman warned that overreacting to individual data points could undermine the progress already achieved, according to Reuters.
- China is exploring a new approach to bolster its ailing real estate market by permitting local governments to use special bonds to purchase unsold properties. Local authorities have already utilized more than half of this year’s CNY 3.9 trillion ($546 billion) bond allocation, and it's unclear how much of the remaining funds could be redirected toward home purchases if the plan is implemented, according to Bloomberg.
- 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.
- 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.
- RBA Governor Michele Bullock expressed that the Australian central bank will not hesitate to raise rates again to combat inflation if needed. Those comments came just days after the RBA decided to hold rates steady at 4.35% for the sixth straight meeting in August.
Technical Analysis: Australian Dollar hovers near 0.6750, targets seven-month highs
The Australian Dollar trades around 0.6750 on Wednesday. Daily chart analysis shows the AUD/USD pair trending upwards within an ascending channel, reinforcing a bullish bias. Additionally, the 14-day Relative Strength Index (RSI) is slightly below the 70 mark, supporting the ongoing bullish momentum. However, further upward movement could indicate that the currency pair is overbought, potentially leading to a correction.
On the upside, the AUD/USD pair could test a seven-month high of 0.6798, followed by the upper boundary of the ascending channel at the 0.6820 level.
For support, the pair may find support around the lower boundary of the ascending channel, which is aligned with the nine-day Exponential Moving Average (EMA) at 0.6670 level. A drop below the nine-day EMA could see the pair test the throwback level at 0.6575, followed by the next 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 Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.10% | 0.07% | 0.32% | -0.04% | 0.03% | 0.23% | 0.00% | |
| EUR | -0.10% | -0.06% | 0.23% | -0.14% | -0.06% | 0.09% | -0.09% | |
| GBP | -0.07% | 0.06% | 0.27% | -0.08% | -0.04% | 0.15% | -0.03% | |
| JPY | -0.32% | -0.23% | -0.27% | -0.36% | -0.28% | -0.15% | -0.30% | |
| CAD | 0.04% | 0.14% | 0.08% | 0.36% | 0.08% | 0.21% | 0.05% | |
| AUD | -0.03% | 0.06% | 0.04% | 0.28% | -0.08% | 0.14% | -0.01% | |
| NZD | -0.23% | -0.09% | -0.15% | 0.15% | -0.21% | -0.14% | -0.17% | |
| CHF | -0.00% | 0.09% | 0.03% | 0.30% | -0.05% | 0.01% | 0.17% |
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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