- The Aussie inches up to 0.6280 on Wednesday.
- Trump’s softer-than-expected China tariffs stance underpins mild risk appetite.
- Investors await January’s flash US S&P Global PMI data for fresh direction.
AUD/USD rises to a new monthly high just below 0.6300, helped by signs that United States (US) tariffs on China may not be as harsh as initially feared. Meanwhile, the US Dollar (USD) recovers slightly from multi-day lows, reflecting ongoing uncertainty regarding future US trade policies. Market participants look forward to the upcoming flash S&P Global PMI numbers for January to gauge broader economic sentiment.
Daily digest market movers: Aussie extends gains while markets await fresh drivers
- The amount of China-specific tariffs proposed under Donald Trump’s revised plan appears significantly smaller than originally anticipated, calming some market nerves.
- The US Dollar briefly slumped to a fresh two-week low near 107.75 before staging an intraday rebound, with the Dollar Index (DXY) edging higher.
- Traders brace for the US S&P Global PMI for January release on Friday for clues about near-term economic trends.
- On the negative tone for the Aussie, the Reserve Bank of Australia (RBA) is considering a potential rate cut at its upcoming February meeting to counter moderate domestic growth and receding inflation.
- In addition, the AUD also contends with subdued consumer sentiment, softer commodity performance, and sluggish demand from key trade partner China.
AUD/USD technical outlook: The pair stays in a 0.6180–0.6280 range with a mildly positive bias
AUD/USD mildly rose to 0.6280 on Wednesday, extending its choppy price action and the pair has oscillated between 0.6180 and 0.6280 in the first weeks of January. The Moving Average Convergence Divergence (MACD) histogram prints rising green bars but remains fairly flat, signaling modest bullish momentum. The Relative Strength Index (RSI) stands at 60, climbing upward yet flattening slightly, indicating a cautious tilt toward buyers. A sustained push above 0.6300 could strengthen the recovery, whereas a dip beneath 0.6180 might rekindle near-term selling pressure.
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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