- The Australian Dollar gains ground as Retail Sales exceeded the expected increase in August.
- The AUD remains solid as the RBA could keep the monetary policy restrictive in the near term.
- US ISM Manufacturing PMI is expected to improve to 47.5 in September, from the previous 47.2 reading.
The Australian Dollar (AUD) holds gains against the US Dollar (USD) on Tuesday, following better-than-expected Retail Sales data. The Australian Bureau of Statistics (ABS) reported the primary gauge of Australia’s consumer spending, which rose 0.7% month-over-month in August, exceeding the market expectations of a 0.4% increase.
The AUD receives support from the hawkish sentiment surrounding the Reserve Bank of Australia (RBA) regarding its interest rate trajectory. The RBA kept its cash rate at 4.35% for a seventh consecutive meeting and stated that the policy would need to stay restrictive to ensure inflation slowed. Additionally, China’s stimulus measures have improved the demand outlook in Australia's largest trading partner, driving up commodity prices and strengthening the commodity-linked Australian Dollar.
The uptick in the AUD/USD pair could be restrained due to the stronger US Dollar (USD), which could be attributed to the latest remarks from the Federal Reserve (Fed) Chairman Jerome Powell. On Monday, Powell said that the central bank is not in a hurry and will lower its benchmark rate ‘over time.’ Fed Chair Powell added that the recent half-point interest rate cut should not be seen as an indication of similarly aggressive future actions, noting that upcoming rate changes are likely to be more modest.
Daily Digest Market Movers: Australian Dollar appreciates due to hawkish RBA’s policy outlook
- The CME FedWatch Tool indicates that markets are assigning a 61.8% probability to a 25 basis point rate cut by the Federal Reserve in November, while the likelihood of a 50-basis-point is 38.2%, down from 53.3% a day ago.
- China's Caixin Manufacturing Purchasing Managers' Index (PMI) fell to 49.3 in September, indicating contraction, down from 50.4 in August. Meanwhile, China’s NBS Manufacturing PMI improved to 49.8 in September, up from 49.1 in the previous month and surpassing the market consensus of 49.5.
- St. Louis Federal Reserve President Alberto Musalem stated on Friday, according to the Financial Times, that the Fed should begin cutting interest rates "gradually" following a larger-than-usual half-point reduction at the September meeting. Musalem acknowledged the possibility of the economy weakening more than anticipated, saying, "If that were the case, then a faster pace of rate reductions might be appropriate."
- On Friday, the US Core Personal Consumption Expenditures (PCE) Price Index for August, increased by 0.1% MoM, falling short of the expected 0.2% rise, aligning with the Federal Reserve's outlook that inflation is easing in the US economy. This has reinforced the possibility of an aggressive rate-cutting cycle by the Fed.
- During his China visit, Australian Treasurer Jim Chalmers had candid and productive discussions with the National Development and Reform Commission (NDRC). Chalmers highlighted China's economic slowdown as a key factor in weaker global growth while welcoming the country's new stimulus measures as a "really welcome development."
- China plans to inject over CNY 1 trillion in capital into its largest state banks, facing challenges such as shrinking margins, declining profits, and increasing bad loans. This substantial capital infusion would mark the first of its kind since the 2008 global financial crisis.
- According to the Reserve Bank of Australia's Financial Stability Review from September 2024, the Australian financial system remains resilient, with risks largely contained. However, notable concerns include stress in China's financial sector and the limited response from Beijing to address these issues. Domestically, a small but growing portion of Australian home borrowers are falling behind on their payments, though only about 2% of owner-occupier borrowers are at serious risk of default.
Technical Analysis: Australian Dollar holds position above 0.6900, lower boundary of an ascending channel
The AUD/USD pair trades near 0.6930 on Tuesday. A daily chart technical analysis shows that the pair is trending upwards within an ascending channel. The pair has held above the lower boundary of the channel, suggesting that the bullish bias remains intact. Moreover, the 14-day Relative Strength Index (RSI) is slightly below the 70 level, reinforcing the positive momentum.
In terms of resistance, the AUD/USD pair may aim for the area near the upper boundary of the ascending channel, around the 0.7020 level. A successful break above the ascending channel could indicate further bullish momentum. However, if the pair fails to breach this resistance, a pause within the channel is possible.
On the downside, the immediate support appears at the lower boundary of the ascending channel around the level of 0.6890, followed by the nine-day Exponential Moving Average (EMA) at the 0.6866 level. A break below this level could weaken the bullish bias and lead the AUD/USD pair to navigate the region around its six-week low of 0.6622.
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 strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.03% | -0.02% | 0.51% | 0.00% | -0.19% | 0.32% | 0.09% | |
| EUR | 0.03% | 0.00% | 0.51% | 0.03% | -0.16% | 0.33% | 0.10% | |
| GBP | 0.02% | -0.00% | 0.52% | 0.02% | -0.17% | 0.34% | 0.11% | |
| JPY | -0.51% | -0.51% | -0.52% | -0.50% | -0.69% | -0.19% | -0.40% | |
| CAD | -0.00% | -0.03% | -0.02% | 0.50% | -0.19% | 0.31% | 0.09% | |
| AUD | 0.19% | 0.16% | 0.17% | 0.69% | 0.19% | 0.50% | 0.27% | |
| NZD | -0.32% | -0.33% | -0.34% | 0.19% | -0.31% | -0.50% | -0.21% | |
| CHF | -0.09% | -0.10% | -0.11% | 0.40% | -0.09% | -0.27% | 0.21% |
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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