- The Australian Dollar trades in positive territory for the second consecutive day in Friday’s Asian session.
- Reduced bets of deeper Fed rate cuts support the USD and weigh on the pair.
- Investors brace for the US PPI data, which is due on Friday.
The Australian Dollar (AUD) gains ground on Friday. Nonetheless, the lower odds of aggressive interest rate cuts from the US Federal Reserve (Fed) after the hotter-than-expected inflation data might lift the US Dollar (USD) and cap the upside for the pair.
In the absence of top-tier economic data releases from the Australia on Friday, the USD price dynamic will be the main driver for the AUD/USD. Investors will monitor the release of US Producer Price Index (PPI), which is due on Friday. The headline PPI is expected to show an increase of 1.6% YoY in September, while the core PPI is estimated to see a rise of 2.7% YoY during the same period. If the reports shows softer than expected outcome, this could weigh on the USD and acts as a tailwind for AUD/USD. Additionally, the preliminary of the Michigan Consumer Sentiment Index will be released later in the day.
Daily Digest Market Movers: Australian Dollar extends its recovery ahead of another US inflation data
- RBA Minutes from the September meeting showed board members overlooked the warning that there would be no rate cuts in the near future. The Australian central bank wants to keep its options open, watching whether the economy starts to pick up in the second half of the year.
- The US Consumer Price Index (CPI) rose 2.4% YoY in September, compared to 2.5% in August, above the consensus of 2.3%, the US Department of Labor Statistics showed Thursday. The core CPI, excluding food and energy, climbed 3.3% YoY in September, above forecast and the previous reading of 3.2%.
- The US Initial Jobless Claims for the week ending October 4 rose to 258K, up from the previous week's 225K. The figure was above the initial consensus of 230K.
- New York Fed President John Williams said on Thursday that he expects more rate cuts lie ahead as inflation pressures continue to moderate and the economy remains solid.
- Chicago Fed President Austan Goolsbee noted he sees a series of rate reductions over the next year to year and a half, noting that inflation is now near the Fed's 2% target and the economy is about at full employment.
- Atlanta Fed President Raphael Bostic is open to the idea of skipping a rate cut in November if economic data still hasn't aligned with the Fed's target figures in time.
Technical Analysis: Australian Dollar maintains a positive view in the longer term
The Australian Dollar trades stronger on the day. According to the daily chart, the AUD/USD pair keeps the bullish vibe as the price is well-supported above the lower limit of the ascending trend channel and the key 100-day Exponential Moving Average (EMA). However, the further downside cannot be ruled out as the 14-day Relative Strength Index (RSI) is located below the midline near 44.70.
The first upside barrier emerges near the high of September 6 at 0.6767. Extended gains could pave the way to 0.6823, the high of August 29. Any follow-through buying above the mentioned level could see a rally to 0.6942, the high of September 30.
On the flip side, the key support level is seen at 0.6700, representing the lower limit of the trend channel, the 100-day EMA, and the psychological level. A breach of this level could expose 0.6622, the low of September 11.
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 treads water below 0.6750 amid dour mood
AUD/USD is off the highs, holding steady below 0.6750 in Asian trading on Friday. A broad US Dollar pullback underpins the pair but the further upside appears capped due to a tepid risk tone. Traders look forward to US PPI inflation data for fresh trading directives.
USD/JPY rises toward 149.00 despite softer risk tone
USD/JPY has picked up fresh bids and approaches 149.00 in Friday's Asian session. The BoJ rate hike uncertainty undermines the Japanese Yen and acts as a tailwind for the pair. However, a dour mood and the US Dollar consolidation could limit the pair's renewed upside. US data eyed.
Gold recaptures key 21-day SMA, as buyers refuse to give up
Gold price is looking to build on the previous recovery from three-week lows of $2,604 early Friday. Broad risk aversion and a modest US Dollar downtick support Gold price heading into the US Producer Price Index data release due later on Friday.
SEC sues Cumberland DRW for acting as an unregistered securities broker, Solana ETFs at risk
The Securities & Exchange Commission filed a lawsuit on Thursday against Chicago-based trading firm Cumberland DRW for operating as an unregistered securities dealer. The regulator mentioned several cryptocurrencies in the suit.
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.