Australian Dollar rises as high inflation drives RBA’s hawkish stance
- The Australian Dollar extends gains as persistently high inflation prompts the RBA to delay rate cuts.
- RBA’s Meeting Minutes suggest an upside risk for May's Consumer Price Index (CPI).
- The US Dollar struggles as the softer US data raise expectations of the Fed reducing rates in 2024.
The Australian Dollar (AUD) appreciates for the fourth successive day on Friday. This upside could be attributed to persistently high inflation is prompting the Reserve Bank of Australia (RBA) to delay potential rate cuts.
RBA’s June Meeting Minutes indicated that the "board judged the case for holding rates steady stronger than hiking." The board emphasized the need to remain vigilant regarding upside risks to inflation, noting that data suggested an upside risk for May's Consumer Price Index (CPI).
The AUD/USD pair also receives support from a weaker US Dollar (USD). The Greenback struggles due to the softer economic data from the United States (US) raising speculations of the Federal Reserve (Fed) reducing interest rates in 2024. The recovery in US Treasury yields could hold the downside of the US Dollar.
Daily Digest Market Movers: Australian Dollar appreciates due to hawkish RBA
- According to the Australian Bureau of Statistics on Thursday, Australia's trade surplus for May was A$5,773 million ($3,868 million), lower than the expected A$6,678 million and down from the previous reading of A$6,548 million.
- Australia's Retail Sales, a measure of the country's consumer spending, increased by 0.6% MoM in May, up from the previous month's 0.1% rise. This figure exceeded market expectations of a 0.2% increase.
- Judo Bank's Australia Services PMI increased to 51.2 MoM, up from the previous month's 51.0, surpassing the forecasted drop to 50.6. Meanwhile, the Composite PMI rose to 50.7 MoM, compared to 50.6 in the previous month.
- China's Services Purchasing Managers' Index (PMI) fell from 54.0 in May to 51.2 in June, according to the latest data released by Caixin on Wednesday. The market forecast was for a 53.4 figure in the reported period.
- US ISM Services PMI fell sharply to 48.8 in June, marking the steepest decline since April 2020. This figure was well below market expectations of 52.5, following a reading of 53.8 in May.
- ADP Employment report showed that US private businesses added 150,000 workers to their payrolls in June, the lowest increase in five months. This figure fell short of the expected 160,000 and was below the downwardly revised 157,000 in May.
- Federal Reserve Bank of Chicago President Austan Goolsbee stated on BBC Radio on Wednesday that bringing inflation back to 2% will take time and that more economic data are needed. However, on Tuesday, Fed Chair Jerome Powell said that the central bank is getting back on the disinflationary path, per Reuters.
Technical Analysis: Australian Dollar hovers around 0.6750
The Australian Dollar trades around 0.6730 on Friday. The analysis of the daily chart shows a rising wedge, which suggests a potential bearish reversal. Additionally, the 14-day Relative Strength Index (RSI) is slightly below the 70 level. If the RSI breaks above this level, it would suggest the asset is overbought and may experience a short-term correction.
The AUD/USD pair is likely to test the upper boundary of the rising wedge at around 0.6780, followed by the psychological level of 0.6800.
On the downside, the AUD/USD pair tests the lower boundary of the rising wedge at 0.6730, followed by the 50-day Exponential Moving Average (EMA) at 0.6635.
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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.04% | -0.04% | -0.19% | -0.03% | -0.17% | -0.07% | -0.05% | |
| EUR | 0.04% | -0.01% | -0.16% | 0.02% | -0.13% | -0.02% | -0.03% | |
| GBP | 0.04% | 0.00% | -0.12% | 0.03% | -0.12% | -0.02% | -0.04% | |
| JPY | 0.19% | 0.16% | 0.12% | 0.16% | 0.03% | 0.11% | 0.12% | |
| CAD | 0.03% | -0.02% | -0.03% | -0.16% | -0.16% | -0.04% | -0.06% | |
| AUD | 0.17% | 0.13% | 0.12% | -0.03% | 0.16% | 0.10% | 0.11% | |
| NZD | 0.07% | 0.02% | 0.02% | -0.11% | 0.04% | -0.10% | -0.02% | |
| CHF | 0.05% | 0.03% | 0.04% | -0.12% | 0.06% | -0.11% | 0.02% |
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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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