Aussie climbs on dovish comments from RBA Governor Bullock

VaselineAugust 16, 2024

0 6 minutes read

Aussie climbs on dovish comments from RBA Governor Bullock

The Australian dollar advances further on dovish sentiment around the RBA.
RBA governor Michele Bullock does not anticipate rate cuts in the near term.
The US dollar depreciates as traders fully price in a quarter-basis point interest rate cut by the Fed in September.

The Australian dollar (AUD) extended its gains for a second straight day against the US dollar (USD) on Friday. Demanding comments from Reserve Bank of Australia (RBA) Governor Michele Bullock are fueling the Aussie’s upside and supporting the AUD/USD pair.

RBA Governor Bullock said on Friday that the Australian central bank remains focused on potential upside risks to inflation and does not anticipate rate cuts in the near term. The board believes it has struck the right balance between controlling inflation and maintaining stability in the current economic climate, according to ABC News.

Read the full article: RBA’s Bullock: Inflation remains too high

The US dollar falls as traders fully price in a 25 basis point rate cut by the US Federal Reserve for September. However, a 50 basis point cut remains a possibility, with the CME FedWatch tool indicating a 26% chance of such a move. Traders will also be watching Michigan’s preliminary US consumer sentiment index for August due out on Friday.

Daily Digest Market Movers: Aussie heads higher on RBA calls

On Friday, U.S. retail sales rose 1.0 percent month over month in July, a sharp rebound from June’s 0.2 percent decline, according to the U.S. Census Bureau. This figure beat the forecast increase of 0.3%. In addition, initial jobless claims for the week ended Aug. 10 came in at 227,000, better than the 235,000 expected and down from 234,000 the previous week.
The People’s Bank of China (PBoC) announced on Thursday that it will renew the funds of the medium-term credit facility, which will expire on August 15 at the end of this month. The central bank also lent CNY577.7 billion ($80.9 billion) through seven-day reverse bond repurchase agreements at 1.7 percent in an open market operation, maintaining the previous rate, according to Reuters. Any change in the Chinese economy could affect the Australian market as both countries are close trading partners.
China’s retail sales rose 2.7 percent year-on-year in July, beating market forecasts of 2.6 percent and accelerating from June’s 17-month low of 2.0 percent. Meanwhile, industrial production rose 5.1 percent year-on-year, falling short of an expected 5.2 percent and down from a 5.3 percent rise in the previous month. This marks the third consecutive month of moderation in industrial production.
Employment change in Australia is reported at 58.2K for July, beating expectations of 20.0K and the previous reading of 52.3K. However, the Unemployment Rate rose to 4.2%, beating market expectations to remain steady at 4.1%. In addition, consumer inflation expectations for August rose to 4.5%, up from the previous reading of 4.3%.
Federal Reserve Bank of Chicago President Austan Goolsbee on Wednesday expressed growing concern about the labor market rather than inflation, noting recent improvements in price pressures alongside weak jobs data. Goolsbee added that the extent of rate cuts will be determined by prevailing economic conditions, according to Bloomberg.
The US consumer price index (CPI) rose 2.9% year-on-year in July, down slightly from June’s 3% rise and below market expectations. Core CPI, which excludes food and energy, rose 3.2 percent year-on-year, down slightly from June’s 3.3 percent rise but in line with market forecasts.
On Tuesday, Atlanta Fed President Raphael Bostic said recent economic data boosted his confidence that the Fed can hit its 2 percent inflation target. However, Bostic indicated that further evidence is needed before endorsing a rate cut, according to Reuters.

Technical Analysis: The Australian Dollar is moving above 0.6600

The Australian dollar is trading around 0.6620 on Friday. According to the daily chart analysis, the AUD/USD pair is testing the lower boundary of an ascending channel. A break below this level could indicate a weakening of the uptrend. Additionally, the 14-day Relative Strength Index (RSI) is slightly above the 50 mark, supporting the current bullish momentum.

In terms of support, the lower boundary of the ascending channel around 0.6610 is the immediate support level for the AUD/USD pair. A break below this could see the pair test the nine-day exponential moving average (EMA) at 0.6593, followed by the retracement level at 0.6575. Should the pair break below this support area, it could signal a bearish outlook, potentially pushing it towards the 0.6470 retracement level.

On the upside, AUD/USD could target the area near the upper limit of the ascending channel at the 0.6720 level. A break above this could propel the pair towards the six-month high of 0.6798 hit on July 11.

AUD/USD: Daily chart

Australian Dollar PRICE Today

The table below shows the percentage change of the Australian Dollar (AUD) against the major listed currencies today. The Australian dollar was the strongest against the US dollar.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.06%	-0.12%	-0.22%	-0.04%	-0.17%	-0.08%	-0.15%
EURO	0.06%		-0.07%	-0.18%	0.00%	-0.14%	-0.12%	-0.06%
GBP	0.12%	0.07%		-0.12%	0.09%	-0.07%	-0.04%	-0.00%
JPY	0.22%	0.18%	0.12%		0.26%	0.07%	0.08%	0.10%
CAD	0.04%	-0.00%	-0.09%	-0.26%		-0.16%	-0.16%	-0.10%
AUD	0.17%	0.14%	0.07%	-0.07%	0.16%		0.01%	0.05%
NZD	0.08%	0.12%	0.04%	-0.08%	0.16%	-0.01%		0.06%
CHF	0.15%	0.06%	0.00%	-0.10%	0.10%	-0.05%	-0.06%

The heat map shows the percentage changes of the major currencies against each other. The base currency is chosen from the left column, while the quoted currency is chosen from the top row. For example, if you choose the Australian dollar in the left column and move along the horizontal line to the US dollar, the percentage change shown in the box will be AUD (base)/USD (quote).

Australian Dollar FAQ

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). Because Australia is a resource-rich country, another key factor is the price of its biggest export, iron ore. The health of the Chinese economy, its largest trading partner, is a factor, as is Australia’s inflation, growth rate and trade. Balance. Market sentiment – whether investors are taking riskier assets (risk-on) or seeking safe havens (risk-off) – is also a factor, with risk positive for the AUD.

The Reserve Bank of Australia (RBA) influences the Australian dollar (AUD) by setting the level of interest rates at which Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main aim 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 is relatively low. The RBA can also use quantitative easing and tightening to influence lending conditions, the former AUD-negative and the latter AUD-positive.

China is Australia’s largest trading partner, so the health of the Chinese economy has a major influence on the value of the Australian dollar (AUD). When the Chinese economy is doing well, it buys more raw materials, goods and services from Australia, increasing 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. Therefore, positive or negative surprises in China’s growth data often have a direct impact on the Australian dollar and its pairs.

Iron ore is Australia’s biggest export, accounting for $118 billion a year, according to 2021 data, with China as the main destination. Therefore, the price of iron ore can be a driver of the Australian dollar. Generally, if the price of iron ore rises, so does the AUD, as aggregate demand for the currency rises. The opposite is true if the price of iron ore falls. Higher iron ore prices also tend to result in a higher likelihood of a positive trade balance for Australia, which is also positive for the AUD.

The balance of trade, 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 only gain in value from the excess demand created by foreign buyers wanting to buy its exports over what it spends on buying its imports. A positive net trade balance therefore strengthens the AUD, with the opposite effect if the trade balance is negative.

VaselineAugust 16, 2024

0 6 minutes read