Aussie dollar holds near five-week highs as PBoC leaves rates unchanged

VaselineAugust 20, 2024

0 5 minutes read

Aussie dollar holds near five-week highs as PBoC leaves rates unchanged

The Australian dollar is holding ground amid dovish sentiment around the RBA.
The PBoC kept its current interest rate at 3.35% at its August meeting on Tuesday.
Fed President Neel Kashkari has indicated that talk of potential US interest rate cuts in September is warranted.

The Australian dollar (AUD) is holding its ground with sentiment to continue its winning streak for a fourth consecutive day against the US dollar (USD) on Tuesday. The AUD/USD pair may see further appreciation following the release of the Reserve Bank of Australia’s (RBA) August meeting minutes, which suggest that the cash rate could remain steady for an extended period.

The Reserve Bank of Australia considered raising rates but concluded that keeping the rate steady better balanced the risks. RBA members agreed that a rate cut was unlikely in the near term.

The People’s Bank of China (PBoC) kept its one-year and five-year prime lending rates (LPR) at 3.35 percent and 3.85 percent, respectively, in Tuesday’s meeting. Any changes in the Chinese economy can affect Australian markets as both are close trading partners.

The US dollar (USD) continues to face downward pressure following comments from Federal Reserve (Fed) officials, which raised the likelihood of further interest rate cuts by the US central bank. All eyes are now on Fed Chairman Jerome Powell’s upcoming speech in Jackson Hole on Friday.

Daily Digest Market Movers: Aussie dollar holds firm thanks to dovish RBA

Minneapolis Fed President Neel Kashkari said on Monday it would be appropriate to discuss potential US interest rate cuts in September because of concerns about a weakening labor market, according to Reuters.
Federal Reserve Bank of San Francisco President Mary Daly stressed on Sunday that the US central bank should take a gradual approach to reducing borrowing costs, according to the Financial Times. In addition, Federal Reserve Bank of Chicago President Austan Goolsbee warned that central bank officials should be cautious about keeping policy tight longer than necessary, according to CNBC.
On Friday, US housing starts fell 6.8% in July to 1.238 million units, after a 1.1% increase in June. Meanwhile, the University of Michigan consumer sentiment index rose to 67.8 in August, showing its first increase in five months, beating expectations and from 66.4 in July.
On Thursday, 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 August 9 were 227,000, better than the 235,000 expected and down from 234,000 the previous week.
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.

Technical analysis: The Australian dollar rises to 0.6750

The Australian dollar is trading around 0.6730 on Tuesday. According to the daily chart analysis, the AUD/USD pair is trending upward in an ascending channel, indicating an uptrend. Additionally, the 14-day Relative Strength Index (RSI) is appreciating towards the 70 mark, reinforcing the ongoing bullish momentum.

On the upside, AUD/USD could target the area near the upper limit of the ascending channel at the 0.6760 level. A breakout above the ascending channel could push the pair towards its seven-month high of 0.6798, which was reached on July 11.

For support, the nine-day EMA at 0.6648 appears as a key support level around the lower boundary of the ascending channel. A break below this level could see the pair test the retracement level at 0.6575. If the pair breaks below this support area, it could indicate a bearish trend, potentially leading it to the retracement level at 0.6470.

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 British pound.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.02%	0.04%	-0.13%	-0.01%	0.05%	-0.33%	-0.08%
EURO	-0.02%		0.02%	-0.15%	-0.01%	0.06%	-0.03%	-0.10%
GBP	-0.04%	-0.02%		-0.15%	-0.03%	0.05%	-0.05%	-0.13%
JPY	0.13%	0.15%	0.15%		0.12%	0.17%	0.08%	0.02%
CAD	0.01%	0.00%	0.03%	-0.12%		0.05%	-0.01%	-0.10%
AUD	-0.05%	-0.06%	-0.05%	-0.17%	-0.05%		-0.08%	-0.17%
NZD	0.33%	0.03%	0.05%	-0.08%	0.01%	0.08%		-0.08%
CHF	0.08%	0.10%	0.13%	-0.02%	0.10%	0.17%	0.08%

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 for 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 20, 2024

0 5 minutes read