- The Australian Dollar gains ground as the RBA is widely expected to maintain a dovish stance on its policy outlook.
- The AiG Industry Index eased in September, rising 4.9 points to -18.6 from the previous reading of -23.5.
- The US dollar receives support from market caution amid rising tensions in the Middle East.
The Australian Dollar (AUD) recovers its recent losses from the previous session against the US Dollar (USD) on Wednesday. The AUD receives support from the Reserve Bank of Australia’s (RBA) hawkish stance on its interest rate path and stimulus measures from Australia’s largest trading partner, China.
The AiG Industry Index improved slightly in September, rising 4.9 points to -18.6 from the previous reading of -23.5, although still signaling contraction for the 29th consecutive month. Meanwhile, the AiG Manufacturing PMI continued its decline, falling 2.8 points to -33.6 from -30.8 previously, marking the lowest level in trend terms since the series began.
The upside of the AUD/USD pair could be limited as the US dollar receives support from market caution amid rising geopolitical tensions in the Middle East. Iran launched more than 200 ballistic missiles at Israel, prompting Prime Minister Benjamin Netanyahu to vow retaliation against Tehran for Tuesday’s attack.
Market Drivers and Movements: Australian Dollar Advances as Traders Expect RBA to Maintain Tight Policy
- The CME FedWatch tool indicates that markets assign a 63.1% probability to a 25 basis point rate cut by the Federal Reserve in November, while the probability of a 50 basis point cut is 36.9 %, down from 58.2% a week ago.
- The US Dollar received downward pressure from the weaker-than-expected ISM Manufacturing PMI released on Tuesday. The index stood at 47.2 for September, matching the August reading but below the market expectation of 47.5.
- The Australian Bureau of Statistics (ABS) on Tuesday reported retail sales, the main indicator of consumer spending in Australia, rose 0.7% month-on-month in August, beating market expectations of a 0.7% increase. 4%.
- Federal Reserve (Fed) Chairman Jerome Powell said on Monday that the central bank is in no hurry and will reduce its reference rate “over time.” Powell added that the recent half-point rate cut should not be seen as an indication of similarly aggressive future actions, noting that upcoming rate changes will likely be more modest.
- China’s Caixin Manufacturing Purchasing Managers’ Index (PMI) fell to 49.3 in September, indicating contraction, from 50.4 in August. Meanwhile, China’s NBS Manufacturing PMI improved to 49.8 in September, from 49.1 the previous month and beating the market consensus of 49.5.
- St. Louis Federal Reserve President Alberto Musalem said Friday, according to the Financial Times, that the Fed should begin cutting interest rates “gradually” following a larger-than-usual half-point reduction at the meeting. of September. Musalem acknowledged the possibility of the economy weakening more than anticipated, saying: “If that were the case, then a faster pace of rate reductions might be appropriate.”
- On Friday, the US core Personal Consumption Expenditure (PCE) Price Index for August rose 0.1% mom, below the expected 0.2% increase, aligning with the Federal Reserve’s outlook that inflation is declining in the US economy. This has reinforced the possibility of an aggressive cycle of rate cuts by the Fed.
Technical Analysis: Australian Dollar struggles to stay above 0.6900 within ascending channel
The AUD/USD pair is trading near 0.6910 on Wednesday. A technical analysis of the daily chart shows that the pair is trying to reintegrate into the ascending channel. This shows that bullish bias is in play. The 14-day Relative Strength Index (RSI) also remains above the 50 level, supporting the ongoing bullish sentiment.
In terms of resistance, a successful return to the ascending channel would reinforce the bullish bias and support the AUD/USD pair to target the zone near the upper boundary of the channel, around the psychological level of 0.7000.
To the downside, immediate support appears at the nine-day EMA at the 0.6869 level. A break below this level could weaken the bullish bias and lead the AUD/USD pair to navigate the region around its seven-week low of 0.6622.
AUD/USD: Daily Chart
Australian Dollar PRICE Today
The table below shows the percentage change of the Australian Dollar (AUD) against major currencies today. Australian dollar was the strongest currency against the Japanese yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.01% | -0.01% | 0.26% | -0.10% | -0.45% | -0.48% | -0.05% | |
| EUR | 0.01% | -0.00% | 0.29% | -0.11% | -0.44% | -0.48% | -0.04% | |
| GBP | 0.01% | 0.00% | 0.27% | -0.12% | -0.44% | -0.48% | -0.04% | |
| JPY | -0.26% | -0.29% | -0.27% | -0.30% | -0.70% | -0.76% | -0.30% | |
| CAD | 0.10% | 0.11% | 0.12% | 0.30% | -0.35% | -0.39% | 0.06% | |
| AUD | 0.45% | 0.44% | 0.44% | 0.70% | 0.35% | -0.04% | 0.41% | |
| NZD | 0.48% | 0.48% | 0.48% | 0.76% | 0.39% | 0.04% | 0.45% | |
| CHF | 0.05% | 0.04% | 0.04% | 0.30% | -0.06% | -0.41% | -0.45% |
The heat map shows percentage changes for 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 box will represent the AUD (base)/USD (quote).
The 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). As 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 Balance of Trade. Market sentiment, that is, whether investors bet on riskier assets (risk-on) or seek safe havens (risk-off), is also a factor, with the 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 being 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 does not grow as fast as expected. Therefore, positive or negative surprises in Chinese growth data usually have a direct impact on the Australian Dollar.
Iron ore is Australia’s largest export, with $118 billion a year according to 2021 data, with China being its main destination. The iron ore price, therefore, may be a driver of the Australian dollar. Typically, if the price of iron ore rises, the AUD also rises as aggregate demand for the currency increases. The opposite occurs when the price of iron ore falls. Higher iron ore prices also tend to result in a higher likelihood 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 from the excess demand created by foreign buyers wanting to purchase its exports versus what it spends on purchasing 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.
