The Australian dollar is moving sideways around seven-month highs

VaselineAugust 27, 2024

0 5 minutes read

The Australian dollar is moving sideways around seven-month highs

The Australian dollar is holding ground as the RBA is expected to take a dovish stance on its policy outlook.
The Australian dollar could advance further as RBA minutes indicated a rate cut is unlikely anytime soon.
The US dollar received downward pressure as Fed Chairman Powell signaled a rate cut soon.

The Australian dollar (AUD) is moving sideways against the US dollar (USD) on Tuesday, holding a position just below the seven-month high of 0.6798 hit on Monday. However, downside for the AUD/USD pair would be limited as traders expect different policy outlooks between the two central banks.

The Reserve Bank of Australia’s (RBA) recent minutes showed that board members agreed that a rate cut was unlikely anytime soon. In addition, RBA Governor Michele Bullock expressed that the Australian central bank will not hesitate to raise interest rates again to fight inflation if necessary.

US Federal Reserve (Fed) Chairman Jerome Powell said at the Jackson Hole Symposium on Friday: “The time has come for policy to adjust.” However, Powell did not specify when the rate cuts would begin or their potential size.

According to the CME FedWatch tool, markets fully anticipate a rate cut of at least 25 basis points (bps) by the Federal Reserve at its September meeting.

Daily Digest Market Movers: Aussie holds ground amid dovish RBA

San Francisco Federal Reserve President Mary Daly said in an interview with Bloomberg TV on Monday that “the time has come” to start cutting interest rates, possibly starting with a quarter-percentage point cut. Daly suggested that if inflation continues to gradually decline and the labor market maintains a “containable, sustainable” pace of job growth, it would be reasonable to “adjust policy to the usual, normal cadence.”
US durable goods orders rose 9.9% month over month in July, rebounding from a 6.9% decline in June. This increase significantly exceeded the expected increase of 4.0%, marking the biggest gain since May 2020.
Bloomberg reported on Friday that Philadelphia Fed President Patrick Harker stressed the need for the US central bank to gradually lower interest rates. Meanwhile, Reuters reported that Chicago Fed President Austan Goolsbee noted that monetary policy is currently at its most restrictive, with the Fed now focusing on meeting its hiring mandate.
The US composite PMI fell slightly to 54.1 in August, a four-month low, down from 54.3 in July, but remained above market expectations of 53.5. This suggests that business activity in the US continues to expand, marking 19 consecutive months of growth.
Judo Bank Australia’s Composite Purchasing Managers’ Index (PMI) rose to 51.4 in August from 49.9 in July. The increase marks the fastest expansion in three months, driven by a stronger performance in the services sector despite a sharper decline in manufacturing output.
The minutes of the FOMC’s July policy meeting indicated that most Fed officials agreed last month that they were likely to cut their benchmark interest rate at the next meeting in September as long as inflation continued to cool.
On Tuesday, RBA minutes suggested that board members had considered a rate hike earlier this month, before ultimately deciding that keeping rates current would better balance risks. Furthermore, RBA members agreed that a rate cut was unlikely anytime soon.

Technical analysis: The Australian dollar remains below 0.6800

The Australian dollar is trading around 0.6770 on Friday. Daily chart analysis shows that the AUD/USD pair has broken below the ascending channel, suggesting a weakening of the bullish bias. However, the 14-day Relative Strength Index (RSI) remains below the 70 level, supporting the ongoing bullish trend.

In terms of resistance, AUD/USD is testing the immediate barrier at the seven-month high at 0.6798, followed by the lower limit of the ascending channel at 0.6800. A break above this level could lead the pair to explore the region around the upper boundary of the ascending channel at the 0.6940 level.

On the downside, AUD/USD could find support around the nine-day EMA at 0.6726. A break below the nine-day EMA could weaken the uptrend and put downward pressure on the pair to navigate the region around the 0.6575 retracement level, followed by another retracement 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 weakest against the euro.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.05%	-0.00%	0.13%	-0.02%	-0.02%	0.02%	-0.02%
EURO	0.05%		0.05%	0.19%	0.01%	0.04%	0.03%	0.04%
GBP	0.00%	-0.05%		0.15%	-0.01%	-0.01%	0.00%	-0.01%
JPY	-0.13%	-0.19%	-0.15%		-0.15%	-0.15%	-0.14%	-0.15%
CAD	0.02%	-0.01%	0.01%	0.15%		0.00%	0.02%	0.02%
AUD	0.02%	-0.04%	0.01%	0.15%	-0.01%		0.00%	0.00%
NZD	-0.02%	-0.03%	-0.01%	0.14%	-0.02%	-0.00%		-0.02%
CHF	0.02%	-0.04%	0.00%	0.15%	-0.02%	-0.01%	0.02%

The heatmap shows the percentage changes of 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 biggest trading partner, is a factor, as well as 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 that 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 27, 2024

0 5 minutes read