- AUD/USD falls as Chinese stimulus concerns weigh on market sentiment.
- Perceived risky currencies are also under pressure due to rising oil prices and the conflict in Israel.
- The minutes of the RBA meeting gave some moderate insights into the RBA’s stance.
AUD/USD fell 0.60% to 0.6725 in Tuesday’s session, influenced by China’s uncertain economic outlook. A senior Chinese official did not detail the size or parameters of the government’s upcoming stimulus measures, worrying investors and sending the Chinese stock market tumbling.
Despite uncertainties surrounding the Australian economy, the Reserve Bank of Australia (RBA) signaled a dovish tone in the release of its latest minutes, fueling bets of an initial cut in December.
Daily Market Summary: Aussie Dollar Falls After RBA Minutes, China Outlook
- Looking at the RBA minutes, during the September 24 meeting, the RBA kept the cash rate target at 4.35% and maintained its neutral stance.
- However, the minutes revealed a more dovish tone as the central bank removed the statement from the August meeting that “a reduction in the cash rate target was unlikely in the near term.”
- Notably, RBA Deputy Governor Hauser dismissed the characterization of the minutes as dovish, emphasizing that the task of reducing inflation “is not yet over.”
- Markets currently place the odds of a 25bp rate cut by December at around 50%.
- On the Fed’s side, markets eased dovish hawkish bets and provided some relief to the Dollar.
- This week’s Consumer Price Index (CPI) reading will be important.
AUD/USD Technical Outlook: Australian pair under bearish momentum, must hold 0.6700
The AUD/USD pair has been trading with a strong bearish bias in recent sessions. The Relative Strength Index (RSI) is in the negative area of the map and is falling sharply. The RSI value of 40 suggests that selling pressure is increasing. The MACD is also bearish with the histogram decreasing and in red.
The overall technical outlook is bearish, and the pair could use supports at 0.6700, 0.6650 and 0.6600. On the other hand, it has resistance at 0.6800, 0.6850 and 0.6900.
The RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages Australia’s monetary policy. Decisions are made by a Council of Governors in 11 meetings a year and in any ad hoc emergency meetings that are necessary. The RBA’s main mandate is to maintain price stability, which means an inflation rate of 2%-3%, but also “…contribute to currency stability, full employment and economic prosperity and well-being of the Australian people. Its main tool to achieve this is to raise or lower interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening monetary policy.
Although inflation has traditionally always been considered a negative factor for currencies, since it reduces the value of money in general, the truth is that in modern times the opposite has happened with the relaxation of cross-border capital controls. Moderately high inflation now tends to lead central banks to raise interest rates, which in turn has the effect of attracting more capital inflows from global investors looking for a lucrative place to store their money. This increases the demand for the local currency, which in the case of Australia is the Australian Dollar.
Macroeconomic data gauges the health of an economy and can impact the value of its currency. Investors prefer to invest their capital in safe and growing economies than in precarious and contracting economies. A greater influx of capital increases aggregate demand and the value of the national currency. Classic indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can influence the AUD. A strong economy may encourage the Reserve Bank of Australia to raise interest rates, also supporting the AUD.
Quantitative Easing (QE) is a tool used in extreme situations in which lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) in order to purchase assets – typically government or corporate bonds – from financial institutions, providing them with much-needed liquidity. . QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is carried out after QE, when the economic recovery is underway and inflation begins to rise. While in QE the Reserve Bank of Australia (RBA) buys government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets and stops reinvesting the maturing principal of the bonds. bonds you already own. It would be positive (or bullish) for the Australian Dollar.
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.
