- Australian Dollar struggles as the US Dollar recovers recent losses.
- Australia’s central bank is expected to implement more interest rate hikes.
- Upbeat US Treasury yields contribute support for the Greenback.
The Australian Dollar (AUD) continues the losing streak for the fourth successive day on Monday. The AUD/USD pair faces challenges due to a rebound in US Dollar (USD) amid upbeat US Treasury yields.
Australia’s central bank is anticipated to implement more stringent monetary policies. Reserve Bank of Australia (RBA) Governor Michele Bullock has stated that should inflation persist above the projected levels, the RBA is prepared to enact suitable policy measures.
Australia’s employment scenario is experiencing interesting shifts. In September, the Employment Change took an unexpectedly sharp decline, adding a surprising twist to the equation. On a positive note, the Unemployment Rate made a favorable move by dropping more than anticipated, deviating from the expected trend.
The US Dollar Index (DXY) bounces back to recover recent losses, potentially supported by strong economic data from the United States (US). However, the US Dollar (USD) encountered hurdles as US Treasury yields experienced a pullback on Friday.
Federal Reserve (Fed) Chairman Jerome Powell indicated on Thursday that the central bank is not planning to raise rates in the short term providing support for the pair. Powell added that additional tightening of monetary policy could be in order if there are further signs of growth or the labor market ceases to improve.
Daily Digest Market Movers: Australian Dollar looks to continue the losing streak on upbeat US Dollar
- Australia’s Unemployment Rate for September surprised on the positive side, coming in at 3.6% compared to the expectations of 3.7%, which was expected to remain consistent.
- Australian Employment Change for the same month was 6.7K, falling short of the consensus forecast of 20K. This is a notable decline from the 64.9K jobs added in August.
- Australia’s central bank expresses 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.
- Atlanta Fed President Raphael Bostic said on Friday that he believes the US central bank is unlikely to lower interest rates before the middle of next year. Fed Philadelphia President Patrick Harker reiterated his inclination to maintain interest rates.
- Fed Cleveland President Loretta Mester indicated that the US central bank is “at or near the peak of the rate hike cycle.” However, Mester acknowledged that the data released during the previous week could influence the central bank’s decision regarding the future of monetary policy.
- US weekly Initial Jobless Claims declined to 198K, falling short of the market expectations of 212K for the week ending October 14, the lowest level since January.
- Existing Home Sales Change fell 2.0% MoM in September and Existing Home Sales improved to 3.96M.
- US Unemployment Rate improved to 3.6%, which was expected to remain consistent at 3.7% in September.
- Market fluctuations persist in the US bond market, as the 10-year Treasury yield stabilizes around 4.94%. Meanwhile, the 2-year yield has dipped to 5.09%.
- Market participants will closely monitor the US S&P Global PMI on Tuesday, the Q3 Gross Domestic Product (GDP) on Thursday, and the Core Personal Consumption Expenditures (PCE) on Friday. The attention will also be focused on the Australian S&P Global PMI and Consumer Price Index (CPI), along with RBA Governor Bullock’s speech.
Technical Analysis: Australian Dollar maintains position above 0.6300 major level
The Australian Dollar trades lower around 0.6310 on Monday, aligning with notable support at the 0.6300 level. A further support level is indicated by the monthly low at 0.6285. Looking upward, a crucial resistance is identified around the 14-day Exponential Moving Average (EMA) at 0.6347, following a major level at 0.6400. A breakthrough above this resistance holds the potential to reach around the 23.6% Fibonacci retracement level at 0.6429.
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 weakest against the US 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).
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when 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) for the purpose of buying 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 undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.