Australian Dollar holds losses as US Dollar remains steady ahead of Fedspeak
|- The Australian Dollar remains tepid as the US Dollar holds its position ahead of Fed Powell's second semi-annual testimony.
- China’s CPI declined by 0.2% in June, compared to a 0.1% decline in May.
- Powell emphasized that a rate cut is not appropriate until the Fed gains confidence that inflation is moving toward 2%.
The Australian Dollar (AUD) declines on Wednesday as the AUD/USD pair continues to face challenges following Federal Reserve (Fed) Chairman Jerome Powell’s testimony before the US Congress on Tuesday. Despite acknowledging improving inflation figures, the Fed remains firmly cautious.
The AUD also receives pressure as the Consumer Price Index (CPI) in China, a close trade partner of Australia, rose at an annual rate of 0.2% in June, down from a 0.3% rise in May. The market had forecasted a 0.4% increase for the period. Monthly, Chinese CPI inflation declined by 0.2% in June, compared to a 0.1% decline in May, which came in below the expected decline of 0.1%.
Traders await the second semi-annual testimony by Fed Chair Jerome Powell and speeches by the Fed’s Michelle Bowman and Austan Goolsbee. Additionally, attention will be on the US Consumer Price Index (CPI) data, set to be released on Thursday.
Market forecasts generally predict that the annualized US core CPI for the year ending in June will remain steady at 3.4%, while headline CPI inflation is expected to increase to 0.1% month-over-month in June, compared to the previous flat reading of 0.0%.
Daily Digest Market Movers: Australian Dollar consolidates as Fed Powell reiterates need for more good inflation data
- Fed Chair Jerome Powell answered questions before the Senate Banking Committee on the first day of his Congressional testimony on Tuesday. Powell stated, "More good data would strengthen our confidence in inflation." He emphasized that a "policy rate cut is not appropriate until the Fed gains greater confidence that inflation is headed sustainably toward 2%." He also noted that "first-quarter data did not support the greater confidence in the inflation path that the Fed needs to cut rates."
- Australia’s 10-year government bond yield hold steady at around 4.4% as investors digest mixed domestic data. Consumer sentiment fell in July following a rise in June, reflecting household concerns over persistent inflation and the potential for further interest rate increases by the Reserve Bank of Australia (RBA). Meanwhile, business confidence rose to its highest level since January 2023.
- 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.
Technical Analysis: Australian Dollar trades sideways near 0.6750
The Australian Dollar trades around 0.6740 on Wednesday. The analysis of the daily chart 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 at approximately 0.6775. If it breaks through this level, the pair could aim for the psychological level of 0.6800.
On the downside, the AUD/USD pair may find support around the lower boundary of the ascending channel at 0.6670, with additional support near the 50-day Exponential Moving Average (EMA) at 0.6642. A break below this level could push the pair toward throwback support around 0.6590.
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 Swiss Franc.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.05% | -0.09% | 0.10% | 0.02% | 0.06% | 0.88% | -0.03% | |
| EUR | 0.05% | -0.03% | 0.16% | 0.09% | 0.09% | 0.91% | 0.00% | |
| GBP | 0.09% | 0.03% | 0.19% | 0.13% | 0.12% | 0.94% | -0.00% | |
| JPY | -0.10% | -0.16% | -0.19% | -0.05% | -0.05% | 0.73% | -0.19% | |
| CAD | -0.02% | -0.09% | -0.13% | 0.05% | 0.03% | 0.84% | -0.12% | |
| AUD | -0.06% | -0.09% | -0.12% | 0.05% | -0.03% | 0.81% | -0.14% | |
| NZD | -0.88% | -0.91% | -0.94% | -0.73% | -0.84% | -0.81% | -0.94% | |
| CHF | 0.03% | -0.01% | 0.00% | 0.19% | 0.12% | 0.14% | 0.94% |
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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