- Australian Dollar gains upward momentum due to higher commodity prices.
- Australia’s RBA is expected to increase interest rates by 25 basis points through the end of the year.
- The dovish remarks by Fed officials contribute to pressure on the US Dollar.
The Australian Dollar (AUD) continues to move on an upward trajectory for the fifth successive day. The Aussie pair is gaining upward support, driven by strong underlying commodity prices and the ongoing conflict in the Middle East. Moreover, Westpac Consumer Confidence showed that individual confidence improved in October.
Australia experienced a rebound in inflation in August, primarily attributed to higher oil prices. This development increases the likelihood of another interest rate hike by the Reserve Bank of Australia (RBA).
If the tension in the Middle East persists, it could contribute to further increases in oil prices, thereby potentially elevating inflationary pressures in the Australian economy. This scenario could prompt the RBA to implement a 25 basis points (bps) interest rate hike, bringing it to 4.35% by the end of the year.
After engaging in discussions with US Senators on Tuesday, China’s Commerce Minister, Wang Wentao, expressed that “both sides had rational and pragmatic discussions”, emphasizing the significance of the US-China economic and trade relationship.
Minister Wang conveyed that China is committed to fair competition based on international rules. He expressed the hope that the US would accurately define security boundaries, urging the avoidance of politicizing and generalizing security issues.
The US Dollar (USD) failed to register significant gains despite the robust US Nonfarm Payroll data released on Friday. This lack of appreciation can be attributed to a decline in US Treasury yields on Monday.
Additionally, the statements from Federal Reserve (Fed) officials overnight led investors to diminish the likelihood of additional rate hikes, causing a further decline in US bond yields. This development is perceived as weakening the strength of the Greenback and providing a tailwind for the Aussie pair.
Daily Digest Market Movers: Australian Dollar extends gains on surging commodity prices
- Australia’s Westpac Consumer Confidence showed that current buying conditions improved in October. The index rose 2.9% from the previous 1.5% decline in September.
- Middle East tension could contribute to further increases in oil prices, thereby potentially elevating inflationary pressures in the Australian economy.
- The heightened geopolitical tensions in the Middle East, are contributing to increased demand for commodities like energy and gold, positively influencing the performance of the AUD/USD pair.
- Australia has committed to ensuring a stable supply of energy resources to Japan in the fifth Japan-Australia Ministerial Economic Dialogue. This agreement reflects a strategic partnership between the two countries, emphasizing the importance of a reliable and consistent flow of energy resources, likely encompassing areas such as coal, and liquified natural gas (LNG).
- Australia’s central bank could go for a rate hike, with expectations pointing toward a peak of 4.35% by the end of the year. This projection aligns with the persistent elevation of inflation above the target.
- The US Nonfarm Payrolls report for September revealed a notable increase of 336,000 jobs, surpassing the market expectation of 170,000. The revised figure for August stood at 227,000.
- US Average Hourly Earnings (MoM) remained steady at 0.2% in September, falling short of the expected 0.3%. On an annual basis, the report indicated a rise of 4.2%, below the anticipated consistent figure of 4.3%.
- The yields on US Treasury bonds declined on Monday, with the 10-year US Treasury bond yield standing at 4.64%.
- Dallas Fed president Lori Logan suggested that there might be less necessity to raise the Fed funds rate, and Fed Vice Chair Philip Jefferson acknowledged the importance of the central bank proceeding cautiously with any additional increases in the policy rate.
- Investors will likely monitor the upcoming International Monetary Fund (IMF) meeting, which is set to deliberate on strategies for stabilizing international exchange rates and fostering development.
- Traders will keenly focus on the US Core Producer Price Index (PPI) on Wednesday and the Consumer Price Index (CPI) on Thursday along with Australia’s Consumer Inflation Expectations, as these events hold a pivotal role in assessing inflationary trends and economic conditions in both nations.
Technical Analysis: Australian Dollar hovers above 0.6400, 23.6% Fibonacci retracement acts as resistance
The Australian Dollar trades higher around 0.6410 against the US Dollar (USD) on Tuesday. The 23.6% Fibonacci retracement at 0.6429 acts to be a significant hurdle. A decisive break above this level could pave the way for the pair to explore higher levels, with the psychological level of 0.6450, lined up with the 50-day Exponential Moving Average (EMA) at 0.6456 as a potential target. On the downside, the key support is seen at 0.6300, followed by the November low at 0.6272. These levels serve as crucial markers for potential shifts in the AUD/USD pair’s trajectory.
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 | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.17% | 0.21% | 0.01% | 0.15% | 0.28% | 0.25% | 0.20% | |
| EUR | -0.18% | 0.03% | -0.17% | -0.02% | 0.11% | 0.05% | 0.02% | |
| GBP | -0.22% | -0.04% | -0.19% | -0.05% | 0.06% | 0.03% | -0.02% | |
| CAD | -0.02% | 0.16% | 0.19% | 0.14% | 0.27% | 0.22% | 0.18% | |
| AUD | -0.16% | 0.00% | 0.04% | -0.16% | 0.14% | 0.07% | 0.02% | |
| JPY | -0.27% | -0.11% | -0.08% | -0.27% | -0.14% | -0.08% | -0.08% | |
| NZD | -0.23% | -0.08% | -0.04% | -0.23% | -0.08% | 0.05% | -0.05% | |
| CHF | -0.19% | -0.02% | 0.02% | -0.18% | -0.02% | 0.09% | 0.03% |
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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (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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