- The Australian Dollar is supported against the US Dollar by divergent central bank policies.
- The PBoC decided to keep its one-year and five-year Prime Lending Rates unchanged at 3.35% and 3.85%, respectively.
- The US Dollar struggles amid the increasing likelihood of further rate cuts by the Federal Reserve in 2024.
The Australian Dollar (AUD) recoups its daily losses and extends its winning streak against the US Dollar (USD) following the People’s Bank of China (PBoC) interest rate decision on Friday. The PBoC opted to keep its one-year and five-year Lending Prime Rates (LPRs) unchanged at 3.35% and 3.85%, respectively. As close trading partners, any developments in the Chinese economy can significantly impact Australian markets.
The AUD/USD pair received support following Thursday’s labor market report and the Federal Reserve’s (Fed) 50 basis point (bp) interest rate cut on Wednesday. The divergence in monetary policy between the Reserve Bank of Australia’s (RBA) commitment to keep rates higher for longer and the Fed’s easing cycle is expected to impact the pair’s movement in the near term.
The US dollar faces challenges amid rising expectations of further rate cuts by the US Federal Reserve by the end of 2024. The latest dot plot projections suggest a gradual easing cycle, with the average rate for 2024 revised down to 4.375% from 5.125% forecast in June.
Fed Chairman Jerome Powell commented on the aggressive rate cut, saying, “This decision reflects our growing confidence that, with appropriate policy adjustments, we can maintain a strong labor market, support moderate economic growth, and bring inflation to a sustainable level of 2 percent.”
Daily Market Wrap: Australian Dollar Rises Against US Dollar on Central Bank Policy Divergence
- U.S. Treasury Secretary Janet Yellen said on Friday that the Federal Reserve’s recent interest rate cut is a very positive indicator for the U.S. economy. According to Yellen, this demonstrates the Fed’s confidence that inflation has significantly decreased and is moving toward the 2% target. Meanwhile, the labor market continues to show strength.
- Australian employment change was 47,500 in August, down from 58,200 in July but well above the consensus forecast of 25,000. The unemployment rate held steady at 4.2% in August, in line with expectations and the previous month’s figure, according to data released by the Australian Bureau of Statistics (ABS).
- The Federal Open Market Committee (FOMC) lowered the federal funds rate to a range of 4.75% to 5.0%, marking the Fed’s first rate cut in more than four years. The move signals the Fed’s commitment to protecting the labor market and steering the economy away from any signs of recession.
- Fed policymakers updated their quarterly economic forecasts, raising the median unemployment projection to 4.4% by the end of 2024 from 4% in June. They also raised their long-term forecast for the federal funds rate to 2.9% from 2.8%.
- Economists at Goldman Sachs and Citi have cut their 2024 GDP growth forecasts for China to 4.7%, below Beijing’s target of about 5.0%. SocGen describes the scenario as a “downward spiral,” while Barclays refers to it as “from bad to worse” and a “vicious cycle.” Morgan Stanley also warned that “things could get worse before they get better,” according to a Reuters report.
- China’s economy showed signs of weakness in August, marked by a continued slowdown in industrial activity and falling property prices, putting increasing pressure on Beijing to boost spending and stimulate demand, the National Bureau of Statistics reported on Saturday, according to Business Standard.
- Reserve Bank of Australia (RBA) Governor Michele Bullock stressed that it is premature to consider rate cuts given persistently high inflation. In addition, RBA Deputy Governor Sarah Hunter noted that while the labour market remains tight, wage growth appears to have peaked and is expected to slow further.
Technical Analysis: Australian Dollar Holds Position Inside Rising Wedge Near 0.6800
The AUD/USD pair is trading near 0.6810 on Friday. The technical analysis of the daily chart shows that the pair is moving higher within the ascending wedge pattern, signaling a strengthening of a bullish bias. Moreover, the 14-day Relative Strength Index (RSI) is moving towards the 70 mark, indicating an ongoing uptrend for the pair.
On the upside, the AUD/USD pair could explore the region around the upper boundary of the ascending wedge at the level of 0.6870. A break above the ascending wedge could support the pair to test the psychological level of 0.6900.
On the downside, the AUD/USD pair is testing the lower boundary of the ascending wedge around the 0.6800 level. A break below this level could push the pair to test the nine-day exponential moving average (EMA) at 0.6760, with the next support at the psychological level of 0.6700.
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 Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.03% | -0.05% | -0.31% | 0.00% | -0.04% | -0.08% | -0.16% | |
| EUR | 0.03% | -0.03% | -0.27% | 0.01% | -0.02% | -0.04% | -0.13% | |
| GBP | 0.05% | 0.03% | -0.25% | 0.07% | 0.03% | -0.01% | -0.08% | |
| JPY | 0.31% | 0.27% | 0.25% | 0.31% | 0.25% | 0.22% | 0.16% | |
| CAD | -0.01% | -0.01% | -0.07% | -0.31% | -0.05% | -0.08% | -0.15% | |
| AUD | 0.04% | 0.02% | -0.03% | -0.25% | 0.05% | -0.01% | -0.12% | |
| NZD | 0.08% | 0.04% | 0.00% | -0.22% | 0.08% | 0.01% | -0.07% | |
| CHF | 0.16% | 0.13% | 0.08% | -0.16% | 0.15% | 0.12% | 0.07% |
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 data, 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.
