- Australian dollar extends gains on improved risk appetite ahead of Fed decision.
- The Reserve Bank of Australia’s hawkish stance supports the Australian dollar.
- The US dollar is struggling as the odds of a 50 basis point Fed interest rate cut on Wednesday increase.
The Australian Dollar (AUD) is extending its gains for the third consecutive day against the US Dollar (USD) on Wednesday. Investors are awaiting the Federal Reserve (Fed) interest rate decision later in the day, although rising expectations for a 50 basis point cut should support risk-sensitive currencies like the AUD.
The AUD/USD pair could advance further as the Australian Dollar remains supported by the Reserve Bank of Australia’s (RBA) hawkish stance. RBA Governor Michele Bullock stated that it is premature to consider rate cuts due to persistently high inflation. Additionally, RBA Deputy Governor Sarah Hunter noted that although the labor market remains tight, wage growth appears to have peaked and is expected to slow further.
The Federal Reserve is widely expected to cut interest rates at its September meeting, after holding rates at a steady 5.25% to 5.5% range since July 2023. The CME FedWatch tool indicates that markets are assigning a 33.0% probability to a 25 basis point rate cut, while the probability of a 50 basis point cut has risen to 67.0%, up from 62.0% the previous day.
Daily Market Movers Roundup: Australian Dollar Gains Ground on Dovish Fed Policy Outlook
- J.P. Morgan CEO Jamie Dimon said Tuesday that whether the Federal Reserve cuts interest rates by 25 or 50 basis points, the impact will be “not earth-shattering.” Dimon emphasized, “They need to do it,” but noted that such moves are relatively minor in the grand scheme of things, as “there’s a real economy” operating beneath the Fed’s rate changes, according to Bloomberg.
- U.S. retail sales rose 0.1% month-on-month in August, following a revised 1.1% increase in July, beating expectations for a 0.2% decline and indicating resilient consumer spending. Meanwhile, the Retail Sales Monitoring Group rose 0.3%, slightly below the 0.4% increase in the previous month.
- ANZ-Roy Morgan consumer confidence rose 1.8 points to an eight-week high of 84.1. While ANZ notes the increase was broad-based, confidence remains firmly in bearish territory.
- Economists at Goldman Sachs and Citi have cut their GDP growth forecasts for China in 2024 to 4.7%, below Beijing’s target of around 5.0%. SocGen describes the situation as a “downward spiral”, while Barclays calls it “from bad to worse” and a “vicious cycle”. Morgan Stanley also warns that “things could get worse before they get better”, according to a Reuters report.
- 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 economy weakened in August, with a continued slowdown in industrial activity and a drop in property prices, as Beijing faces mounting pressure to increase spending to boost demand. According to Business Standard, this was reported by the National Bureau of Statistics on Saturday.
- Australian consumer inflation expectations eased to 4.4% in September, slightly below August’s four-month high of 4.5%. The decline underscores the central bank’s efforts to balance reducing inflation within a reasonable timeframe with maintaining gains in the labor market.
Technical Analysis: Australian Dollar Holds Above 0.6750; Next Barrier Appears at Seven-Month Highs
The AUD/USD pair is trading near 0.6760 on Wednesday. The technical analysis of the daily chart indicates that the pair is positioned below the lower boundary of the ascending wedge pattern, which indicates a possible bearish reversal. However, the 14-day Relative Strength Index (RSI) remains above the 50 level, which suggests an ongoing bullish trend.
On the upside, a return to the rising wedge would reinforce the bullish bias and push the AUD/USD pair to test a seven-month high of 0.6798, followed by the 0.6800 level. Further resistance appears at the upper boundary of the rising wedge at the 0.6820 level.
On the downside, the AUD/USD pair could find immediate support around the nine-day exponential moving average (EMA) at the level of 0.6730, followed by the psychological level of 0.6700. A break below the latter could lead the pair to navigate the region around the retracement support zone near 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 US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.12% | -0.05% | -0.58% | -0.06% | -0.16% | -0.32% | -0.23% | |
| EUR | 0.12% | 0.06% | -0.46% | 0.05% | -0.03% | -0.22% | -0.10% | |
| GBP | 0.05% | -0.06% | -0.50% | -0.02% | -0.09% | -0.28% | -0.15% | |
| JPY | 0.58% | 0.46% | 0.50% | 0.51% | 0.42% | 0.26% | 0.38% | |
| CAD | 0.06% | -0.05% | 0.02% | -0.51% | -0.10% | -0.26% | -0.13% | |
| AUD | 0.16% | 0.03% | 0.09% | -0.42% | 0.10% | -0.16% | -0.05% | |
| NZD | 0.32% | 0.22% | 0.28% | -0.26% | 0.26% | 0.16% | 0.11% | |
| CHF | 0.23% | 0.10% | 0.15% | -0.38% | 0.13% | 0.05% | -0.11% |
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.
