- The Australian Dollar recovers losses as the US Dollar edges lower on Wednesday.
- China’s CPI declined by 0.2% in June, compared to a 0.1% decline in May.
- Powell emphasized that a rate cut is not appropriate until the Fed gains confidence that inflation is moving toward 2%.
The Australian Dollar (AUD) recovers its daily losses and returns in its sideways auction below 0.6750 in Wednesday’s early European session. However, the AUD/USD pair faced challenges following Federal Reserve (Fed) Chairman Jerome Powell’s testimony before the US Congress on Tuesday. Despite acknowledging improving inflation figures, the Fed remains firmly cautious.
The AUD may struggle as the Consumer Price Index (CPI) in Australia’s close trade partner China, rose at an annual rate of 0.2% in June, down from a 0.3% rise in May. The market had forecasted a 0.4% increase for the period. On a monthly basis, Chinese CPI inflation declined by 0.2% in June, compared to a 0.1% decline in May, which came in below the expected decline of 0.1%.
Traders are anticipating the second semi-annual testimony by Fed Chair Jerome Powell, as well as speeches by the Fed’s Michelle Bowman and Austan Goolsbee. Additionally, attention will be on the US Consumer Price Index (CPI) data, set to be released on Thursday.
Market forecasts generally predict that the annualized US core CPI for the year ending in June will remain steady at 3.4%, while headline CPI inflation is expected to increase to 0.1% month-over-month in June, compared to the previous flat reading of 0.0%.
Daily Digest Market Movers: Australian Dollar consolidates as Fed Powell reiterates need for more good inflation data
- Fed Chair Jerome Powell answered questions before the Senate Banking Committee on the first day of his Congressional testimony on Tuesday. Powell stated, “More good data would strengthen our confidence in inflation.” He emphasized that a “policy rate cut is not appropriate until the Fed gains greater confidence that inflation is headed sustainably toward 2%.” He also noted that “first-quarter data did not support the greater confidence in the inflation path that the Fed needs to cut rates.”
- Australia’s 10-year government bond yield hold steady at around 4.4% as investors digest mixed domestic data. Consumer sentiment fell in July following a rise in June, reflecting household concerns over persistent inflation and the potential for further interest rate increases by the Reserve Bank of Australia (RBA). Meanwhile, business confidence rose to its highest level since January 2023.
- Australia’s Westpac Consumer Confidence dropped by 1.1% in July, reversing the 1.7% increase seen in June. This marks the fifth decline in 2024, driven by ongoing worries about high inflation, elevated interest rates, and a sluggish economy.
- US Nonfarm Payrolls (NFP) increased by 206,000 in June, following a rise of 218,000 in May. This figure surpassed the market expectation of 190,000.
- The US Unemployment Rate edged up to 4.1% in June from 4.0% in May. Meanwhile, Average Hourly Earnings decreased to 3.9% year-over-year in June from the previous reading of 4.1%, aligning with market expectations.
Technical Analysis: Australian Dollar trades sideways near 0.6750
The Australian Dollar trades around 0.6740 on Wednesday. The analysis of the daily chart shows that the AUD/USD pair consolidates within an ascending channel, indicating a bullish bias. Additionally, the 14-day Relative Strength Index (RSI) remains above the 50 level, confirming the bullish momentum.
The AUD/USD pair may test the upper boundary of the ascending channel at approximately 0.6775. If it breaks through this level, the pair could aim for the psychological level of 0.6800.
On the downside, the AUD/USD pair may find support around the lower boundary of the ascending channel at 0.6670, with additional support near the 50-day Exponential Moving Average (EMA) at 0.6642. A break below this level could push the pair toward throwback support around 0.6590.
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.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.04% | -0.05% | 0.11% | -0.02% | -0.02% | 0.60% | -0.03% | |
| EUR | 0.04% | 0.01% | 0.17% | 0.04% | 0.00% | 0.62% | -0.01% | |
| GBP | 0.05% | -0.01% | 0.17% | 0.03% | -0.01% | 0.61% | -0.03% | |
| JPY | -0.11% | -0.17% | -0.17% | -0.10% | -0.14% | 0.44% | -0.17% | |
| CAD | 0.02% | -0.04% | -0.03% | 0.10% | -0.01% | 0.60% | -0.05% | |
| AUD | 0.02% | -0.01% | 0.00% | 0.14% | 0.00% | 0.61% | -0.04% | |
| NZD | -0.60% | -0.62% | -0.61% | -0.44% | -0.60% | -0.61% | -0.64% | |
| CHF | 0.03% | 0.00% | 0.03% | 0.17% | 0.05% | 0.04% | 0.64% |
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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.