- The Australian Dollar is appreciating as recent jobs data reduces the likelihood of a near-term RBA rate cut.
- The Australian dollar may face challenges from safe-haven flows amid rising geopolitical tensions in the Middle East.
- The US Dollar experienced losses following bearish Producer Price Index data on Tuesday.
The Australian Dollar (AUD) is extending gains for a third consecutive session against the US Dollar on Wednesday. The AUD/USD pair may advance further as recent data shows that wage growth in Australia remained elevated in the second quarter, prompting the Reserve Bank of Australia (RBA) to take a hawkish stance on its policy outlook.
The RBA held the cash rate at last week’s meeting to ensure inflation returns to its 2-3% target. RBA Governor Michele Bullock also ruled out the possibility of rate cuts over the next six months, stressing that the Australian central bank remains cautious on inflation risks and is prepared to raise rates again if necessary. Traders now await the release of Australian Consumer Inflation Expectations and Employment data on Thursday.
The AUD/USD pair received support as the US Dollar lost ground following the weaker-than-expected US Producer Price Index (PPI) data released on Tuesday. Investors will likely be eyeing the US CPI inflation report on Wednesday, which could offer some clues on the path of interest rate cuts by the Federal Reserve (Fed).
Daily Market Wrap: Australian Dollar Appreciates as Traders Expect RBA to Maintain a Dovish Stance
- On Tuesday, Atlanta Fed President Raphael Bostic said recent economic data has increased his confidence that the Fed can meet its 2% inflation target. However, Bostic indicated that additional evidence is required before he would support a rate cut, according to Reuters.
- The US core Producer Price Index (PPI) rose 2.4% year-on-year in July, up from the previous reading of 3.0%. The index missed an estimate of 2.7%. The core PPI was unchanged.
- The US PPI rose 2.2% year-on-year in July from 2.7% in June, below the market expectation of 2.3%. Meanwhile, the PPI rose 0.1% month-on-month after rising 0.2% in June.
- Australia’s Westpac Consumer Confidence rose 2.8% in August, swinging from a 1.1% drop in July. Meanwhile, the Wage Price Index was flat with a 0.8% rise in the second quarter, slightly below the market expectation of a 0.9% increase.
- On Monday, Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser attributed persistent inflation to weaker supply and a tight labor market. Hauser also noted that economic outlooks are shrouded in significant uncertainty.
- The risk-sensitive AUD’s upside could be limited by safe-haven flows amid rising geopolitical tensions in the Middle East. On Sunday, Defense Minister Yoav Gallant informed U.S. Defense Secretary Lloyd Austin that Iran’s military activities indicate preparations for a significant attack on Israel, according to Axios writer Barak Ravid.
- On Sunday, Federal Reserve Governor Michelle Bowman said she continues to see upside risks to inflation and continued strength in the labor market. This suggests the Fed may not be ready to cut rates at its next meeting in September, according to Bloomberg.
- Last week, Westpac updated its forecast for the RBA, now predicting the first rate cut will occur in February 2025, a change from the previously anticipated November 2024. They also revised their terminal rate forecast to 3.35%, from the previous 3.10%. The RBA is now seen to be more cautious, needing more robust evidence before considering rate cuts.
Technical Analysis: Australian Dollar Rises Near 0.6650
The Australian dollar is trading around 0.6640 on Wednesday. The daily chart analysis indicates that the AUD/USD pair is moving higher within an ascending channel, signaling a strengthening of the bullish bias. Moreover, the 14-day Relative Strength Index (RSI) has broken above the 50 level, confirming the bullish momentum.
On the upside, the AUD/USD pair could test the upper boundary of the ascending channel at the level of 0.6675. A break above this level could push the pair towards its six-month high of 0.6798, reached on July 11.
In terms of support, the AUD/USD pair could test the nine-day Exponential Moving Average (EMA) at 0.6587, followed by the lower boundary of the ascending channel and the retracement level at 0.6575. A drop below the latter could strengthen a bearish outlook, potentially pushing the pair towards the retracement level at 0.6470.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.00% | -0.02% | 0.01% | 0.02% | -0.12% | 0.13% | 0.02% | |
| EUR | -0.00% | -0.03% | 0.03% | 0.00% | -0.07% | 0.12% | 0.01% | |
| GBP | 0.02% | 0.03% | 0.08% | 0.05% | -0.06% | 0.16% | 0.07% | |
| JPY | -0.01% | -0.03% | -0.08% | 0.00% | -0.12% | 0.09% | 0.04% | |
| CAD | -0.02% | 0.00% | -0.05% | -0.00% | -0.12% | 0.11% | 0.03% | |
| AUD | 0.12% | 0.07% | 0.06% | 0.12% | 0.12% | 0.19% | 0.11% | |
| NZD | -0.13% | -0.12% | -0.16% | -0.09% | -0.11% | -0.19% | -0.07% | |
| CHF | -0.02% | -0.01% | -0.07% | -0.04% | -0.03% | -0.11% | 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).
The RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages Australia’s monetary policy. Decisions are made by a Board of Governors at 11 meetings per year and at ad hoc emergency meetings as necessary. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2%-3%, but also to “…contribute to currency stability, full employment and the economic prosperity and well-being of the Australian people.” Its main tool for achieving this is to raise or lower interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other tools of the RBA are quantitative easing and monetary tightening.
Although inflation has traditionally always been considered a negative factor for currencies, as it reduces the value of money in general, the opposite has actually occurred in modern times with the relaxation of cross-border capital controls. Moderately high inflation now tends to lead central banks to raise their 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 Australia’s case 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, growing economies rather than in weak, shrinking ones. Greater capital inflows boost aggregate demand and the value of the domestic 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 where 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 – usually government or corporate bonds – from financial institutions, thereby 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 is starting 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 it already owns. This 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.
