Australian Dollar edges higher on hawkish RBA Bullock
|- Australian Dollar gains ground in Tuesday’s European session following the RBA’s Bullock press conference.
- The RBA decided to leave the key interest rate unchanged at 4.35% for the fifth consecutive meeting in June.
- Investors will shift their attention to US Retail Sales and Industrial Production for May, which are due later on Tuesday.
The Australian Dollar (AUD) trades on a stronger note on Tuesday during the press conference following the release of the June monetary policy decision. The Reserve Bank of Australia (RBA) held the Official Cash Rate (OCR) steady at 4.35% for the fifth meeting in a row in June. The RBA raised the OCR by 25 basis points (bps) last time in November 2023.
The hawkish RBA’s Bullock has boosted the Australian Dollar (AUD) as the case for a rate cut was not considered at this meeting. On the US docket, investors will keep an eye on US Retail Sales and Industrial Production for May. The Federal Reserve’s (Fed) Lisa Cook, Thomas Barkin, Adriana Kugler, Lorie Logan, Alberto Musalem, and Austan Goolsbee are set to speak later on Tuesday. The stronger-than-expected data could boost the USD and create a headwind for AUD/USD.
Daily Digest Market Movers: Australian Dollar trades stronger after the RBA interest rate decision
- The RBA’s board decided to stay the course on policy, indicating that the central bank needs a lot to go its way to bring inflation back to range.
- The board did not consider the case for a rate cut at this meeting and would not say that the case for a rate hike is increasing as high interest rates negatively impact some sectors of the country.
- The RBA’s monetary policy statement showed that inflation remains above target and is proving persistent and the central bank needs to be confident that inflation is moving sustainably towards the target range.
- RBA is not ruling anything in or out to ensure that inflation returns to target in a reasonable timeframe, per the statement.
- Philadelphia Fed President Patrick Harker said on Monday that one interest-rate cut is appropriate for this year if the US economy performed as expected. Harker further stated that he’d like to see “several” evidence of improving inflation, per Bloomberg.
- The US NY Empire State Manufacturing Index improved to -6.0 in June from -15.6. in the previous reading, above the consensus of the forecast of -9.0.
- Financial markets have priced in a nearly 62% odds rate cut from the US Fed on September 18, according to the CME’s FedWatch Tool.
Technical Analysis: AUD/USD finds some support above the key 100-day EMA
The Australian Dollar trades firmer on the day. The bullish stance of the AUD/USD pair remains fragile as it hovers around the key 100-day Exponential Moving Average (EMA) on the daily chart. The pair could resume its downside trajectory if it crosses below the key EMA, as mentioned. Furthermore, the 14-day Relative Strength Index (RSI) remains below the 50-midline, supporting the sellers for the time being.
The potential downside target for AUD/USD will emerge near the confluence of the 100-day EMA and the lower limit of Bollinger Band in the 0.6580-0.6585 zone. Extended losses will pave the way to 0.6510, a low of March 22. The next contention level is seen at 0.6465, a low of May 1.
On the other hand, the first upside barrier is located at 0.6684, the upper boundary of the Bollinger Band. A decisive break above the mentioned level will see a rally to 0.6715, a high of May 16. Further north, the next resistance level to watch is 0.6760, a high of January 4.
Australian Dollar price this week
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies this week. Australian Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.28% | -0.10% | -0.01% | -0.24% | 0.27% | 0.24% | -0.12% | |
| EUR | 0.27% | 0.16% | 0.25% | 0.02% | 0.55% | 0.50% | 0.13% | |
| GBP | 0.11% | -0.14% | 0.10% | -0.12% | 0.40% | 0.34% | -0.01% | |
| CAD | 0.01% | -0.27% | -0.09% | -0.19% | 0.30% | 0.25% | -0.11% | |
| AUD | 0.27% | -0.02% | 0.12% | 0.22% | 0.52% | 0.49% | 0.10% | |
| JPY | -0.29% | -0.56% | -0.41% | -0.27% | -0.52% | -0.04% | -0.43% | |
| NZD | -0.26% | -0.54% | -0.36% | -0.24% | -0.49% | 0.00% | -0.35% | |
| CHF | 0.12% | -0.12% | 0.01% | 0.13% | -0.11% | 0.44% | 0.35% |
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).
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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