- The Australian dollar is appreciating due to a slight increase in the probability of a 50 basis point Fed rate cut.
- Australian Dollar Supported by RBA’s Bolivarian Stance
- The US dollar faces challenges as Treasury yields decline amid uncertainty over the magnitude of the Fed’s rate cut.
The Australian Dollar (AUD) is up against the US Dollar (USD) on Monday. The AUD/USD pair could appreciate further on growing speculation that the US Federal Reserve will opt for a 50 basis point rate cut at this week’s monetary policy meeting. Traders are looking ahead to a slew of Australian employment data due out later this week to assess the health of the labor market and potential implications on domestic monetary policy.
The Reserve Bank of Australia (RBA) has maintained a hawkish stance, with RBA Governor Michele Bullock stating that it is premature to consider rate cuts due to persistently high inflation. RBA Deputy Governor Sarah Hunter also noted that while the labour market remains tight, wage growth appears to have peaked and is expected to slow further.
The US dollar is under downward pressure as US Treasury yields decline amid uncertainty over the magnitude of the Fed rate cut. According to the CME FedWatch tool, markets are anticipating a 48.0% chance of a 25 basis point (bps) rate cut by the Fed at its September meeting. The probability of a 50 bps rate cut has risen to 52.0%, up from 50.0% a day earlier.
Daily Market Wrap: Australian Dollar Appreciates Amid Uncertainty Over Fed Rate Cut
- The University of Michigan’s Consumer Sentiment Index rose to 69.0 in September, beating market expectations for a reading of 68.0 and marking a four-month high. The increase reflects a gradual improvement in consumers’ outlook on the U.S. economy after months of declining economic expectations.
- China’s retail sales grew 2.1% year-on-year in August, slowing from 2.7% in the previous month and falling short of the market consensus of 2.5%. Given the close trade relationship between China and Australia, any change in China’s economic performance could significantly impact the Australian market.
- China’s economy weakened in August, with a continued slowdown in industrial activity and a drop in property prices, as Beijing faces mounting pressure to boost spending and stimulate demand. This was reported by the National Bureau of Statistics on Saturday, according to Business Standard.
- The US Producer Price Index (PPI) rose to 0.2% m/m in August, beating the expected increase of 0.1% and the previous 0.0%. Meanwhile, the core PPI accelerated to 0.3% m/m, compared with the expected increase of 0.2% and the contraction of 0.2% in July.
- Former Reserve Bank of Australia (RBA) Governor Bernie Fraser has criticised the current RBA Board for being too focused on inflation at the expense of the labour market. Fraser suggested the Board should lower the cash rate, warning of “recessionary risks” that could have serious consequences for employment.
- Australian consumer inflation expectations eased to 4.4% in September, down slightly from a four-month high of 4.5% in August. The decline underscores the central bank’s efforts to balance reducing inflation over a reasonable timeframe with maintaining gains in the labor market.
- The US Consumer Price Index (CPI) declined to 2.5% year-on-year in August from the previous reading of 2.9%. The index was below the expected reading of 2.6%. The headline CPI came in at 0.2% on a monthly basis. Meanwhile, the core CPI excluding food and energy remained unchanged at 3.2% on a monthly basis. On a monthly basis, the index rose to 0.3% from the previous 0.2%.
Technical Analysis: Australian Dollar tests the upper boundary of the descending channel around 0.6700
The AUD/USD pair is trading near 0.6700 on Monday. The technical analysis of the daily chart indicates that the pair is testing the upper boundary of a descending channel. A successful breakout would signal a weakening of the bearish bias. Moreover, the 14-day Relative Strength Index (RSI) is holding above the 50 level, suggesting a shift in momentum from a bearish to an uptrend.
On the upside, a break above the upper boundary of the descending channel near the 0.6700 level could trigger a bullish bias for the AUD/USD pair. This could potentially push the pair towards its seven-month high of 0.6798 and test the psychological level of 0.6800.
On the downside, the AUD/USD pair could find immediate support around the nine-day exponential moving average (EMA) at the level of 0.6703. A break below this level could reinforce the bearish bias and lead the pair to navigate the region around the lower boundary of the descending channel near the retracement support zone around 0.6575.
AUD/USD: Daily Chart
Australian Dollar PRICE Today
The table below shows the Australian Dollar (AUD) exchange rate against major currencies today. The Australian Dollar was the strongest currency against the New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.11% | -0.14% | -0.17% | -0.14% | -0.08% | 0.06% | -0.05% | |
| EUR | 0.11% | -0.08% | -0.11% | -0.07% | -0.04% | 0.11% | 0.01% | |
| GBP | 0.14% | 0.08% | -0.11% | 0.01% | 0.05% | 0.20% | 0.10% | |
| JPY | 0.17% | 0.11% | 0.11% | 0.03% | 0.14% | 0.24% | 0.05% | |
| CAD | 0.14% | 0.07% | -0.01% | -0.03% | -0.03% | 0.19% | -0.03% | |
| AUD | 0.08% | 0.04% | -0.05% | -0.14% | 0.03% | 0.15% | 0.03% | |
| NZD | -0.06% | -0.11% | -0.20% | -0.24% | -0.19% | -0.15% | -0.10% | |
| CHF | 0.05% | -0.01% | -0.10% | -0.05% | 0.03% | -0.03% | 0.10% |
The heatmap shows percentage changes of major currencies. The base currency is selected from the left column, while the quote currency is selected from the top row. For example, if you choose the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change shown in the chart will represent the AUD (base)/USD (quote).
Australian Dollar FAQs
One of the most important factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Since Australia is a resource-rich country, another key factor is the price of its largest export, iron ore. The health of the Chinese economy, its largest trading partner, is a factor, as is inflation in Australia, its growth rate and the Trade Balance. Market sentiment, i.e. whether investors are betting on riskier assets (risk-on) or seeking safe havens (risk-off), is also a factor, with risk-on being positive for the 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 RBA’s main objective 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 ones. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former being negative for the AUD and the latter positive for the AUD.
China is Australia’s largest trading partner, so the health of the Chinese economy greatly influences the value of the Australian Dollar (AUD). When the Chinese economy is doing well, it buys more raw materials, goods and services from Australia, which increases demand for the AUD and drives up its value. The opposite occurs when the Chinese economy is not growing as fast as expected. Therefore, positive or negative surprises in Chinese growth data often have a direct impact on the Australian Dollar.
Iron ore is Australia’s largest export, worth $118 billion per year as of 2021, with China being its main destination. The price of iron ore can therefore be a driver of the Australian dollar. Typically, if the price of iron ore rises, the AUD rises as well, as aggregate demand for the currency increases. The opposite occurs when the price of iron ore falls. Higher iron ore prices also tend to lead to a higher probability of a positive trade balance for Australia, which is also positive for the AUD.
The trade balance, which is the difference between what a country earns from its exports and 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, its currency will gain value solely because of the excess demand created by foreign buyers wanting to purchase its exports compared to what it spends on buying imports. Therefore, a positive net trade balance strengthens the AUD, with the opposite effect if the trade balance is negative.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
