- Australian Dollar pulls back from weekly highs ahead of the US Core PPI.
- Australia’s RBA is expected to increase interest rates; contributing support for the Aussie Dollar.
- The slew of dovish remarks by Fed officials contribute to pressure on the US Dollar.
The Australian Dollar (AUD) halts the five-day winning streak that began last week on a downbeat US Dollar (USD). The AUD/USD pair is strengthening as the likelihood of another interest rate hike by the Reserve Bank of Australia (RBA) increases. This trend can be linked to growing inflation expectations fueled by higher oil prices.
Australia might witness robust underlying commodity prices owing to the ongoing conflict in the Middle East. Additionally, Westpac Consumer Confidence data for October indicates an improvement in individual confidence during the same period.
Australia’s business conditions showed resilience in September despite a deceleration in inflation. Moreover, Consumer Sentiment rebounded in October with unchanged rates, but the overall sentiment remained overshadowed by the rising cost of living.
Christopher Kent, Assistant Governor (Financial Markets) at the Reserve Bank of Australia (RBA), addressed the Bloomberg gathering in Sydney on Wednesday. Kent highlighted the chance to observe the economy’s response to previous interest rate hikes. There are currently no intentions to accelerate the rate of bond holdings. In the event of bond sales, the approach would be careful to avoid market disturbances.
Kent also noted instances of rapid wage growth in specific sectors, although the overall impact remains contained. While acknowledging the significance of Consumer Price Index (CPI) data, Kent emphasized that it is not the sole factor influencing policy considerations.
The US Dollar Index (DXY) loses its ground to extend losses that began last week. The US Dollar (USD) faced a challenge despite a minor recovery in US Treasury yields on Tuesday.
Furthermore, a series of dovish-leaning comments from Fed policymakers have resonated in the markets, with many expressing worries that elevated long-term US bond yields might hinder their inclination to raise rates in the upcoming meetings.
Daily Digest Market Movers: Australian Dollar extends gains on RBA interest rate trajectory
- 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).
- The escalation of the Middle East conflict 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.
- The heightened geopolitical tension is contributing to increased demand for commodities like energy and gold, positively influencing the performance of the AUD/USD pair.
- 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.
- 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.
- The US Nonfarm Payroll 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 slightly recovered on Tuesday. However, the 10-year US Treasury bond yield stands down at 4.64%.
- Atlanta’s Fed President Raphael Bostic went on record stating that the current monetary policy is already restrictive, rendering additional rate hikes unnecessary, following the dovish trajectory established by two fellow Fed colleagues on Monday, Minneapolis Fed President Neel Kashkari echoed a similar sentiment on Tuesday.
- Investors will closely watch economic data, particularly focusing on inflation figures. The Producer Price Index (PPI) is scheduled for Wednesday, followed by the release of the FOMC meeting minutes and the Consumer Price Index (CPI) on Thursday along with Australia’s Consumer Inflation Expectations.
Technical Analysis: Australian Dollar pulls back, 23.6% Fibonacci retracement acts as a barrier
The Australian Dollar moves below the 23.6% Fibonacci retracement level at 0.6429 on Wednesday, presenting a noteworthy barrier. A decisive breakthrough above this level could open the door for further upward exploration, targeting the psychological level of 0.6450. Beyond that, the 50-day Exponential Moving Average (EMA) at 0.6456 emerges as a potential resistance, following the 38.2% Fibonacci retracement at 0.6518. On the downside, a pivotal support level is identified at 0.6300, followed by the November low at 0.6272. These levels play a crucial role in indicating potential shifts in the trajectory of the AUD/USD pair.
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 weakest against the Euro.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.09% | -0.07% | 0.02% | 0.18% | 0.19% | 0.22% | -0.03% | |
| EUR | 0.09% | 0.03% | 0.11% | 0.25% | 0.28% | 0.30% | 0.06% | |
| GBP | 0.05% | -0.04% | 0.08% | 0.23% | 0.25% | 0.29% | 0.03% | |
| CAD | -0.01% | -0.10% | -0.08% | 0.17% | 0.17% | 0.20% | -0.04% | |
| AUD | -0.18% | -0.27% | -0.24% | -0.16% | 0.01% | 0.02% | -0.21% | |
| JPY | -0.19% | -0.25% | -0.22% | -0.17% | -0.03% | 0.06% | -0.21% | |
| NZD | -0.23% | -0.32% | -0.31% | -0.22% | -0.05% | -0.05% | -0.28% | |
| CHF | 0.03% | -0.06% | -0.03% | 0.05% | 0.21% | 0.22% | 0.25% |
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).
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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