- The Australian dollar could appreciate on expectations that the RBA will maintain higher rates.
- AUD upside may be limited as softer second quarter inflation dampened the chances of another RBA rate hike.
- The CME’s FedWatch tool suggests a 72.0% chance of a 50-basis-point Fed rate cut in September, up from 11.8% last week.
The Australian Dollar (AUD) is moving sideways against the US Dollar (USD) with a positive bias on Thursday. This AUD/USD pair could appreciate due to the Reserve Bank of Australia’s (RBA) hawkish pause on the cash rate at 4.35% on Tuesday. Moreover, RBA Governor Michele Bullock has indicated that inflation remains too high and a rate cut is not anticipated in the near future.
However, Australia’s recent second quarter inflation figures have dampened expectations for another RBA rate hike, which could limit the Australian dollar’s upside. Markets are now pricing in an RBA rate cut in November, a shift from the previous forecast for April next year.
The US Federal Reserve (Fed) is widely expected to implement a more aggressive rate cut from September, following weaker jobs data in July that has raised concerns about a possible US recession.
According to the CME’s FedWatch tool, there is now a 72.0% probability of a 50 basis point (bp) interest rate cut by the US Federal Reserve (Fed) in September, up from 11.8% a week earlier. The expectation of deeper rate cuts could put pressure on the US dollar in the near term.
Daily Market Wrap: Australian Dollar Consolidates with Positive Bias
- The Australian dollar could face difficulties due to increased risk aversion linked to the escalation of tensions in the Middle East. According to two US intelligence officials, Iran and its allies are preparing a possible retaliation against Israel. This response is expected following the recent assassinations of a senior Hezbollah military commander in Iran in Lebanon and a senior Hamas leader in Tehran, CNN reported.
- China’s trade balance showed a surplus of $84.65 billion for July, down from $99.0 billion expected and $99.05 billion previously. Exports (year-on-year) stood at 7.0% versus 9.7% expected and 8.6% previously. Meanwhile, imports rose 7.2% year-on-year versus 3.5% expected, from a decline of 2.3% previously. Any changes in the Chinese economy could impact the Australian market as both countries are close trading partners.
- The Australian manufacturing index AiG showed a slight slowdown in contraction in July, improving to -20.7 from the previous reading of -25.6. Despite this improvement, the index has been indicating contraction for the past twenty-seven months.
- On Wednesday, Treasurer Jim Chalmers questioned the RBA’s view that the economy remains too robust and that large government budgets are contributing to prolonged inflation, according to Macrobusiness.
- On Tuesday, RBA Governor Michele Bullock said the board had seriously considered raising the cash rate from 4.35% to 4.6% due to ongoing concerns about excessive demand in the economy. In addition, RBA Chief Economist Sarah Hunter noted on Wednesday that the Australian economy is performing somewhat better than the RBA previously anticipated.
- According to Reuters, San Francisco Federal Reserve Bank President Mary Daly expressed increasing confidence on Monday that U.S. inflation is moving toward the Fed’s 2% target. Daly noted that “risks to the Fed’s mandates are becoming more balanced and there is openness to the possibility of rate cuts at upcoming meetings.”
- Chicago Fed President Austan Goolsbee said on Monday that the U.S. central bank is prepared to act if economic or financial conditions worsen. Goolsbee stressed, “We’re looking ahead, and if conditions collectively start to deteriorate in any of those parts, we’re going to deal with it,” according to Reuters.
Technical Analysis: Australian Dollar hovering around 0.6550 level
The Australian dollar is trading around 0.6530 on Thursday. The daily chart analysis shows that the AUD/USD pair is consolidating above the descending channel, signaling a weakening of the bearish trend. Moreover, the 14-day Relative Strength Index (RSI) is rising from the oversold level of 30, indicating a potential for upward movement.
In terms of support, the AUD/USD pair could find support at the upper boundary of the descending channel around the 0.6470 retracement support level. A break below the latter could put downward pressure on the pair to test the lower boundary of the descending channel around the 0.6420 level.
On the upside, the nine-day exponential moving average (EMA) at 0.6535 serves as immediate resistance, with additional resistance at the 0.6575 level, where “pullback support” has turned into resistance. A break above this level could push the AUD/USD pair towards a six-month high of 0.6798.
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 British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.03% | 0.06% | -0.32% | -0.09% | -0.09% | -0.02% | -0.26% | |
| EUR | 0.03% | 0.09% | -0.29% | -0.08% | -0.07% | 0.00% | -0.24% | |
| GBP | -0.06% | -0.09% | -0.39% | -0.18% | -0.18% | -0.11% | -0.34% | |
| JPY | 0.32% | 0.29% | 0.39% | 0.16% | 0.18% | 0.21% | -0.00% | |
| CAD | 0.09% | 0.08% | 0.18% | -0.16% | 0.00% | 0.08% | -0.17% | |
| AUD | 0.09% | 0.07% | 0.18% | -0.18% | -0.01% | 0.07% | -0.17% | |
| NZD | 0.02% | -0.01% | 0.11% | -0.21% | -0.08% | -0.07% | -0.25% | |
| CHF | 0.26% | 0.24% | 0.34% | 0.00% | 0.17% | 0.17% | 0.25% |
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 versus 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.
