Australian Dollar remains tepid as risk aversion grips the market
|- The Australian Dollar extends losses due to risk aversion sentiment on Tuesday.
- Australia’s Consumer Confidence fell 0.3% MoM in May, marking the third consecutive month of decline.
- RBA Meeting Minutes showed that it was challenging to rule in or rule out future changes in the cash rate.
- The higher US Treasury yields contributed to the support of the US Dollar.
The Australian Dollar (AUD) continues to lose ground on Tuesday, possibly driven by the risk aversion sentiment. However, the AUD/USD pair edged higher after the release of Westpac Consumer Confidence during the early Asian hours. The index 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.
The Australian Dollar could receive support as China announced a broad package to support its struggling property market, including the relaxation of mortgage rules and urging local governments to buy unsold homes. This could have lifted sentiment in Aussie markets as both nations are close trade partners.
The US Dollar (USD) trades steady amid the absence of top-tier economic data releases from the United States (US). The higher US Treasury yields contribute to the support of the Greenback. The US Federal Reserve (Fed) is cautious about inflation and the potential for rate cuts in 2024.
Daily Digest Market Movers: Australian Dollar depreciates after RBA Minutes
- Minutes from the RBA meeting in May 2024 showed that the board considered raising rates but ultimately judged the case for maintaining a steady policy to be stronger. Policymakers agreed that it was challenging to either rule in or rule out future changes in the cash rate. They noted that the flow of data had increased the risk of inflation remaining above the target for an extended period.
- The ASX 200 dropped to around 7,850 on Tuesday following a mixed session on Wall Street. Declines in James Hardie and Sonic Healthcare offset gains in the tech sector. However, mining giants saw an uptick, driven by higher iron ore prices due to Beijing's measures to support the struggling property sector and a surge in copper prices.
- In an interview with Bloomberg, Loretta Mester, President of the Federal Reserve Bank of Cleveland, stated that she no longer believes three rate cuts in 2024 are appropriate. Mester highlighted that inflation risks are skewed to the upside and emphasized that there is no harm in spending additional time gathering data on inflation, given the strength of the economy.
- According to the CME FedWatch Tool, the likelihood of the Federal Reserve delivering a 25 basis-point rate cut in September has slightly increased to 49.6%, up from 48.6% a week ago.
- 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.
- Federal Reserve Board of Governors member Michelle Bowman said on Friday that the progress on inflation might not be as steady as many had hoped. Bowman indicated that the decline in inflation observed in the latter half of last year was temporary and that there has been no further progress on inflation this year.
Technical Analysis: Australian Dollar could test the psychological level of 0.6700
The Australian Dollar trades around 0.6670 on Tuesday. The daily chart for AUD/USD showed an ascending triangle formation. Additionally, the 14-day Relative Strength Index (RSI) indicated a bullish sentiment, holding above the 50 mark.
The AUD/USD pair could test the upper limit of the ascending triangle, near the four-month peak of 0.6714. A breakout above this level might lead the pair to explore the area around the significant barrier at 0.6750.
On the downside, potential support is at the nine-day Exponential Moving Average (EMA) at 0.6651, aligned with the key level of 0.6650. A break below this support could push the AUD/USD pair toward the lower boundary of the ascending triangle around 0.6610 and 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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.01% | 0.00% | 0.08% | 0.21% | -0.01% | 0.12% | 0.04% | |
| EUR | -0.01% | -0.01% | 0.07% | 0.18% | -0.03% | 0.11% | 0.02% | |
| GBP | 0.01% | 0.02% | 0.09% | 0.20% | -0.01% | 0.12% | 0.04% | |
| CAD | -0.08% | -0.07% | -0.08% | 0.12% | -0.10% | 0.04% | -0.04% | |
| AUD | -0.21% | -0.20% | -0.21% | -0.13% | -0.21% | -0.09% | -0.17% | |
| JPY | 0.00% | 0.02% | 0.00% | 0.09% | 0.19% | 0.11% | 0.07% | |
| NZD | -0.12% | -0.11% | -0.12% | -0.04% | 0.08% | -0.13% | -0.07% | |
| CHF | -0.04% | -0.02% | -0.05% | 0.05% | 0.16% | -0.06% | 0.08% |
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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