Australian Dollar Price Forecast: AUD holds ground, RBA's hawkish signs help

AUD extends gains after RBA’s hawkish hold.
Governor Bullock affirmed no immediate need for rate cuts.
Investors digest Trade Balance data from China.

The AUD/USD pair is currently trading around 0.6555, up by 0.50% on Wednesday. The Australian Dollar continues to gain strength from the Reserve Bank of Australia (RBA) holding rates steady on Tuesday. Governor Bullock maintained that there is no pressing need to cut rates, securing the Australian Dollar's position.

Due to the mixed Australian economic outlook and the RBA’s hawkish stance, markets are now pricing just 25 bps of easing in 2024.

Daily digest market movers: AUD holds firm following RBA's decision

The Reserve Bank of Australia decisively held rates at 4.35%, reinforcing that "the Board is not ruling anything in or out.” The RBA also underlined the need for vigilance toward upside risks to inflation.
The updated macro forecasts anticipate longer-lasting inflation, with trimmed mean and headline CPI inflation predicted to hit the midpoint of the 2-3% band by December 2026 as opposed to the June 2026 estimate from the May forecasts. Markets have reacted swiftly, now pricing in only 25 bps of easing by year-end.
Governor Bullock clarified that "the Board did consider a rate rise" and that rate cuts are "not on the agenda in the near term." She added that expectations for rate cuts are "a little ahead of themselves."
On the data front, China's July Trade Balance, in terms of Chinese Yuan, was CNY601.98 billion, down from June's CNY703.77 billion. The country’s imports rebounded by 6.6% YoY in July from -0.6% recorded in June, while exports rose by 6.5% YoY vs. 10.7% seen in June.
It's important to note that China is an important trade partner from Australia, and the Aussie is sensitive to Chinese data.

AUD/USD technical analysis: Bulls step in as selling pressure decelerates

The AUD/USD pair has been bearish over the past sessions, but bears seem to be taking a breather. The most immediate support and resistance seem to be around the 0.6480 and 0.6570 levels, respectively.

The Relative Strength Index (RSI) is hovering around the neutral area of the scale after hitting oversold terrain in the last sessions. However, the general decrease in value suggests a downtrend. Similarly, the Moving Average Convergence Divergence (MACD) indicator presents a series of diminishing red bars, indicating diminishing, but bearish momentum lining up with the bearish price action on the chart.

RBA FAQs

What is the Reserve Bank of Australia and how does it influence the Australian Dollar?

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.

How does inflation data impact the value of the Australian Dollar?

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.

How does economic data influence the value of the Australian 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.

What is Quantitative Easing (QE) and how does it affect the Australian Dollar?

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.

What is Quantitative tightening (QT) and how does it affect the Australian Dollar?

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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