- Aussie bears lick their wounds after retreating due to soft US Dollar and broad risk-on mood.
- The hawkish RBA, less dovish Fed expectations and the US political transition continue to influence AUD/USD price action.
- Mixed US data seems to have weakened the Greenback on Thursday.
The AUD/USD regained positive traction on Thursday following the overnight pullback from a one-week top. A softer US Dollar and a positive risk tone benefited the Aussie, as well as the Reserve Bank of Australia’s (RBA) hawkish stance. Traders look forward to US macro data and Federal Reserve (Fed) speakers for some meaningful opportunities.
This week, the AUD/USD is facing a bearish trend due to a stronger US Dollar supported by geopolitical concerns and higher bond yields. The RBA's hawkish stance, indicating potential interest rate adjustments, provides temporary support for the Aussie. However, weak Australian and Chinese economic data, along with the Fed's reluctance to cut interest rates quickly, continues to weigh on the AUD/USD pair.
Daily digest market movers: Australian Dollar fluctuates around 0.6500 as markets assess mixed US data
- On the US front, Initial Jobless Claims for the week ending November 15 totaled 213,000, below expectations of 220,000.
- Concerningly, Continuing Claims surged to 1.908 million, up from 1.872 million the previous week.
- The Philadelphia Fed Manufacturing Survey plunged into contractionary territory with a reading of -5.5, down significantly from the positive 8 and 10.3 seen earlier.
- The probability of a Fed rate cut in December has decreased by 16.5% since last week, which seems to have pushed the USD into a slight consolidation.
- USD bulls also pause as they await clarity on President-elect Donald Trump's policies.
AUD/USD technical outlook: Despite a slight recovery, AUD/USD indicators remain bearish
Technical indicators for the AUD/USD pair display some renewed momentum but remain subdued in negative territory. The Relative Strength Index (RSI) lingers well below the 50 mid-point, signaling bearish sentiment. The Moving Average Convergence Divergence (MACD) also remains under its signal line, reinforcing the downtrend.The pair faces resistance at the 20-day Simple Moving Average (SMA), which has served as a significant barrier. Until this level is decisively breached, downside risks remain elevated, suggesting that the AUD/USD may continue to slide in the near term.
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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