- US Dollar recovers amid conflict in the Middle East.
- US NFP data last week tempered aggressive easing bets on the Fed.
- Reserve Bank of Australia's Meeting Minutes of September policy meeting might stop the bleeding.
The AUD/USD pair declined by 0.50% to 0.6765 on Monday, pressured by a stronger US Dollar and concerns over geopolitical tensions in the Middle East.
The Australian economy faces an uncertain future amid conflicting economic signals. Despite healthy employment levels and strong consumer spending, inflation remains stubbornly high. The Reserve Bank of Australia (RBA) has adopted a cautious approach. This week’s minutes will be closely followed.
Daily digest market movers: Australian Dollar declines, while US Dollar gains
- AUD declined amid Middle East tensions, pressuring risk-sensitive currencies due to rising oil prices.
- USD strengthened with the DXY near 102.00, boosted by strong upcoming US Nonfarm Payrolls data and cooling easing bets on the Fed.
- The likelihood of a 50-basis-point reduction in November or December has diminished to zero, while there is only a 90% chance of a 25-basis-point cut next month being factored in.
- Even with robust economic data, the market continues to expect a total easing of 125 basis points over the next year.
- Fed speakers and Consumer Price Index (CPI) data from the US will guide the pair’s trajectory this week.
AUD/USD technical outlook: Pair extends losses, 20-day SMA gone
The AUD/USD extends its losses, and indicators are weak with the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) deep in negative terrain. In addition, the loss of the 20-day SMA has worsened the outlook for the pair.
Supports line up at 0.6750, 0.6730 and 0.6700, while resistances are seen at 0.6800, 0.6815 and 0.6850.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
AUD/USD: Next on the downside emerges the 200-day SMA
AUD/USD retreated for the third day in a row on Monday, breaking below the 0.6800 support with certain conviction amidst mild gains in the US Dollar and ahead of the release of the RBA Minutes early on Tuesday.
EUR/USD remained under pressure and below 1.1000
There was no respite for the leg lower in EUR/USD, although the steep pullback seems to have met some decent contention around 1.0950 for the time being, always against the backdrop of unabated gains in the Greenback and persevering geopolitical jitters.
Gold ranges around $2,650, awaits fresh clues
Spot Gold's consolidative phase continued throughout the first half of Monday after the noisy United States NFP report released last Friday. XAU/USD found near-term demand at the beginning of the week as Middle East tensions undermined the market’s mood.
XRP climbs as Ripple funds see rise in inflows, traders digest developments in SEC appeal
Ripple (XRP) price on Monday is being influenced by the token unlock on October 1, XRP fund flows and sentiment among crypto market participants.
RBA widely expected to keep key interest rate unchanged amid persisting price pressures
The Reserve Bank of Australia is likely to continue bucking the trend adopted by major central banks of the dovish policy pivot, opting to maintain the policy for the seventh consecutive meeting on Tuesday.
Five best Forex brokers in 2024
VERIFIED Choosing the best Forex broker in 2024 requires careful consideration of certain essential factors. With the wide array of options available, it is crucial to find a broker that aligns with your trading style, experience level, and financial goals.