- The Australian Dollar gains ground due to a divergent policy outlook between the RBA and the Fed.
- China’s Caixin Manufacturing PMI fell to 49.3 in September, from a reading of 50.4 in August.
- Traders are likely to focus on Fed Chair Jerome Powell’s speech on Monday.
The Australian Dollar (AUD) continues its winning streak for the third consecutive session on Monday. This rise follows Purchasing Managers’ Index (PMI) data from China, Australia’s largest trading partner. Furthermore, rising expectations that the US Federal Reserve (Fed) may continue its policy easing in November are weakening the US dollar and supporting the AUD/USD pair.
China’s Caixin Manufacturing Purchasing Managers’ Index (PMI) fell to 49.3 in September, indicating contraction, from 50.4 in August. Meanwhile, the Caixin services PMI saw a significant drop, falling to 50.3 from a reading of 51.6 in August, reflecting a slowdown in the services sector.
The US Dollar received downward pressure following US Core Personal Consumption Expenditure (PCE) Price Index data for August released on Friday. The monthly index rose 0.1% month-on-month, below the expected 0.2% increase, aligning with the Federal Reserve’s view that inflation is declining in the US economy. This has reinforced the possibility of an aggressive cycle of rate cuts by the Fed.
The CME’s FedWatch tool indicates that markets are assigning a 42.9% probability to a 25 basis point rate cut by the Federal Reserve in November, while the probability of a 50 basis point increase rose to 57. .1%, from 50.4% a week ago.
Daily Market Summary: Australian Dollar Rises on RBA’s Dovish Stance
- China’s NBS Manufacturing Purchasing Managers’ Index (PMI) improved to 49.8 in September, from 49.1 in the previous month and beating the market consensus of 49.5. However, the non-manufacturing PMI fell to 50.0 in September, compared to 50.3 in August and below the expected 50.4.
- The Reserve Bank of Australia’s (RBA) hawkish stance is contributing to the rise of the Australian Dollar. The RBA kept its cash rate at 4.35% for the seventh consecutive meeting and stated that policy would need to remain restrictive to ensure inflation eases.
- 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 that the economy could weaken more than anticipated, saying, “If that were the case, then a faster pace of rate cuts might be appropriate.”
- During his visit to China, Australian Treasurer Jim Chalmers had frank and productive discussions with the National Development and Reform Commission (NDRC). Chalmers highlighted China’s economic slowdown as a key factor in weakening global growth, while welcoming the country’s new stimulus measures as a “really welcome development.”
- Annualized US Gross Domestic Product (GDP) increased at a rate of 3.0% in the second quarter, as previously estimated, according to the US Bureau of Economic Analysis (BEA) on Thursday. Meanwhile, the GDP price index rose 2.5% in the second quarter.
- China plans to inject more than CNY 1 trillion in capital into its largest state-owned banks, which are facing challenges such as thin margins, declining profits and rising bad loans. This substantial capital injection would be the first of its kind since the 2008 global financial crisis.
- According to the Reserve Bank of Australia’s September 2024 Financial Stability Review, the Australian financial system remains resilient, with risks largely contained. However, notable concerns include stress on China’s financial sector and Beijing’s limited response to address these issues. Nationally, a small but growing portion of Australian home borrowers are behind on their payments, although only about 2% of owner-occupier borrowers are at serious risk of default.
- The Commonwealth Bank of Australia (CBA) anticipates that the RBA will have to revise its consumption forecasts downwards in November. The RBA has already acknowledged downside risks to its current outlook. This potential revision, combined with expectations of further growth in unemployment and core inflation in line with CBA forecasts, could position the RBA to implement rate cuts before the end of the year.
Technical Analysis: The Australian Dollar remains above 0.6920, the lower limit of an ascending channel
The AUD/USD pair is trading near 0.6920 on Monday. Technical analysis of the daily chart shows that the pair is moving along the lower boundary of an ascending channel pattern. The AUD/USD pair remains above the boundary, indicating continued bullish momentum. Furthermore, the 14-day Relative Strength Index (RSI) remains above the 50 level, confirming the bullish sentiment.
In terms of resistance, the AUD/USD pair could target the region near the upper boundary of the ascending channel, which is around the 0.7000 level. If the pair successfully breaks above this level, it could signal additional bullish potential. However, failure to break could result in a pullback within the channel.
On the downside, a break below the lower boundary of the ascending channel could weaken the bullish bias and lead the AUD/USD pair to test the nine-day EMA at the 0.6853 level. A break below this level could cause the bearish bias to emerge and lead the pair to navigate the region around its six-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 | 0.06% | -0.02% | 0.03% | 0.05% | -0.21% | -0.32% | -0.06% | |
| EUR | -0.06% | -0.07% | -0.02% | 0.03% | -0.20% | -0.35% | -0.03% | |
| GBP | 0.02% | 0.07% | 0.15% | 0.09% | -0.13% | -0.28% | 0.03% | |
| JPY | -0.03% | 0.02% | -0.15% | 0.09% | -0.29% | -0.32% | -0.02% | |
| CAD | -0.05% | -0.03% | -0.09% | -0.09% | -0.22% | -0.38% | -0.06% | |
| AUD | 0.21% | 0.20% | 0.13% | 0.29% | 0.22% | -0.15% | 0.17% | |
| NZD | 0.32% | 0.35% | 0.28% | 0.32% | 0.38% | 0.15% | 0.29% | |
| CHF | 0.06% | 0.03% | -0.03% | 0.02% | 0.06% | -0.17% | -0.29% |
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.
