- Australian Dollar rebounds from the yearly lows as the US Dollar corrects.
- Aussie Dollar receives upward support as the RBA expects to increase interest rates.
- US Dollar faced pressure as downbeat Core PCE contributed to increasing demand for US bonds.
The Australian Dollar (AUD) rebounds from the yearly lows, extending gains for the second successive day on Friday. The pair recovers on the back of the correction of the US Dollar (USD) and the likelihood of another rate hike from the Reserve Bank of Australia (RBA) on November 7.
Australia’s Producer Price Index (PPI) displayed a year-over-year decline in the third quarter on Friday, while the PPI on a quarter-over-quarter basis showed improvement. However, the recent inflation data has introduced the possibility of a 25 basis points rate hike by the Reserve Bank of Australia (RBA) in the upcoming meeting. The Australian Bureau of Statistics (ABS) revealed on Wednesday that the Consumer Price Index (CPI) experienced an upswing in the third quarter of 2023.
RBA Governor Michele Bullock remarked on Thursday that the Consumer Price Index (CPI) was slightly higher than anticipated but fell within the expected range. Bullock emphasized the central bank’s goal of slowing down the economy without pushing it into a recession.
The US Dollar Index (DXY) navigates to sustain its gains, buoyed by the expansion of the United States (US) economy in the third quarter. The data also unveiled a preliminary core Personal Consumption Expenditure (PCE) price index that was lower than expected, sparking increased demand for bonds.
The upcoming Federal Open Market Committee (FOMC) meeting next week is anticipated to bring no changes to interest rates, as per current market expectations. Furthermore, on Friday, the US is set to release the monthly core Personal Consumption Expenditure (PCE), a pivotal measure of inflation. The report will encompass data on personal spending and income, offering insights into the US economic overview.
Daily Digest Market Movers: Australian Dollar gains ground on the possibility of another rate hike by the RBA
- Australia’s Producer Price Index (PPI) showed a slight easing to 3.8% on a yearly basis in the third quarter (Q3), compared to the 3.9% recorded in the previous quarter. On a quarterly basis, the nation’s PPI increased to 1.8%, a notable rise from the previous reading of 0.5%.
- Australian Consumer Price Index (CPI) reached 1.2% in the third quarter of 2023, surpassing the 0.8% uptick in the previous quarter and the market consensus of 1.1% in the same period.
- Australia’s S&P Global Composite PMI in October slipped to 47.3 from the prior reading of 51.5. The Manufacturing PMI experienced a slight easing to 48.0 compared to the previous figure of 48.7, and the Services PMI regressed into contraction territory, dropping to 47.6 from the previous month’s reading of 51.8.
- Australia’s RBA expressed heightened concern about the inflation impact stemming from supply shocks. Governor of the Reserve Bank of Australia, Michele Bullock stated that if inflation persists above projections, the RBA will take responsive policy measures. There is an observable deceleration in demand, and per capita consumption is on the decline.
- The announcement of Israel Prime Minister Benjamin Netanyahu on a potential ground assault in Gaza is likely to fuel safe-haven investments. In addition, Iranian Foreign Minister Hossein Amir-Abdollahian’s arrival in the USA for talks on the situation between Hamas and Israel, as reported by Iranian media, adds another layer of complexity to the geopolitical landscape.
- The preliminary US Gross Domestic Product (GDP) Annualized showed growth in the third quarter, expanding by 4.9%, a notable improvement from the previous reading of a 2.1% expansion and surpassing the market expectation of 4.2%. However, there was a decline in US Core Personal Consumption Expenditures, declining to 2.4% in the third quarter from the 3.7% recorded previously.
- In terms of employment, the weekly Initial Jobless Claims for the week ending October 21 totaled 210K, up from 200K in the previous reading, and slightly higher than the market consensus of 208K.
- US S&P Global Composite PMI reported an increase in October, reaching 51.0 from 50.2. The Services PMI experienced growth, reaching 50.9, while the Manufacturing PMI rose to 50.0.
- Investors will likely shift their focus on the US Core Personal Consumption Expenditures (PCE) on Friday.
Technical Analysis: Australian Dollar hovers below the major resistance at 0.6350
The Australian Dollar trades higher around 0.6330 on Friday aligned with the major barrier at the 0.6350 level, rebounding from the yearly low at 0.6270 followed by the key support around the 0.6250 major level. The 21-day Exponential Moving Average (EMA) at 0.6352 emerges as the key resistance, following the 0.6400 major level. A breakthrough above this resistance can reach around the 23.6% Fibonacci retracement level at 0.6417.
AUD/USD: Daily Chart
Australian Dollar price today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the New Zealand Dollar.
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for 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 main goal of the RBA 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. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus 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, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.