The Aussie dollar advances on increasing chances of an aggressive rate cut by the Fed

VaselineSeptember 16, 2024

0 6 minutes read

The Aussie dollar advances on increasing chances of an aggressive rate cut by the Fed

The Australian dollar is up on a slight increase in the odds of a 50 basis point Fed rate cut.
Aussie dollar gets support from RBA’s dovish stance.
The US dollar faces challenges as Treasury yields fall amid uncertainty over the extent of the Fed’s interest rate cut.

The Australian dollar (AUD) inches higher against the US dollar (USD) on Monday. The AUD/USD pair could appreciate further on growing speculation that the US Federal Reserve will opt for a jumbo 50 basis point rate cut at this week’s monetary policy meeting. Traders are eagerly awaiting a round of Australian jobs data due later this week to gauge the health of the labor market and potential implications for domestic monetary policy.

The Reserve Bank of Australia (RBA) has maintained a dovish stance, with RBA Governor Michele Bullock saying it is premature to consider rate cuts due to persistently high inflation. RBA Assistant Governor Sarah Hunter also noted that while the labor market remains tight, wage growth appears to have peaked and is expected to slow further.

The US dollar is receiving downward pressure as US Treasury yields depreciate amid uncertainty over the extent of the Fed’s interest rate cut. According to the CME FedWatch tool, markets anticipate a 48.0% chance of a 25 basis point (bps) rate cut by the Fed at its September meeting. The probability of a 50 bps rate cut rose to 52.0% from 50.0% a day ago.

Daily Digest Market Movers: Australian Dollar Appreciates on Fed Rate Cut Uncertainty

The University of Michigan’s consumer sentiment index rose to 69.0 in September, beating market expectations of a 68.0 reading and marking a four-month high. The increase reflects a gradual improvement in consumers’ outlook for the US economy after months of declining economic expectations.
China’s retail sales rose 2.1 percent year-on-year in August, slowing from 2.7 percent the previous month and falling short of the market consensus of 2.5 percent. Given the close trade relationship between China and Australia, any change in China’s economic performance could have a significant impact on the Australian market.
China’s economy weakened in August, with industrial activity continuing to slow and property prices falling, as Beijing faces mounting pressure to boost spending to boost demand. This was reported by the Office for National Statistics on Saturday, according to Business Standard.
The US producer price index (PPI) rose 0.2% month-on-month in August, beating the forecast 0.1% rise and the previous 0.0%. Meanwhile, the core PPI accelerated to 0.3% on the month, versus the expected 0.2% increase and July’s contraction of 0.2%.
Former Reserve Bank of Australia (RBA) governor Bernie Fraser has criticized the current RBA board for focusing too much on inflation at the expense of the labor market. Fraser suggested the Council should cut the cash rate, warning of “recession risks” that could have serious consequences for employment.
Australian consumer inflation expectations fell to 4.4% in September, down slightly from August’s peak of 4.5%. This decline highlights the central bank’s efforts to balance reducing inflation within a reasonable timeframe and maintaining gains in the labor market.
The US consumer price index fell to 2.5% from a year earlier in August, from the previous reading of 2.9%. The index fell below the expected value of 2.6%. Headline CPI was 0.2% for the month. Core CPI ex Food & Energy, meanwhile, was unchanged at 3.2% YoY. On a monthly basis, the index rose to 0.3 percent from the previous reading of 0.2 percent.

Technical Analysis: Australian Dollar Tests Upper Limit of Descending Channel Around 0.6700

AUD/USD is trading near 0.6700 for the month. Technical analysis of the daily chart indicates that the pair is testing the upper limit of a descending channel. A successful breakout would signal a bearish bearish trend. Additionally, the 14-day Relative Strength Index (RSI) remains above the 50 level, suggesting a change in momentum from a bearish trend to a bearish trend.

On the upside, a breakout above the upper limit of the descending channel near the 0.6700 level could trigger an uptrend for the AUD/USD pair. This could push the pair towards its seven-month high of 0.6798 and test the psychological level of 0.6800.

On the downside, AUD/USD could find immediate support around the nine-day EMA at 0.6703. A break below this level could reinforce the bearish trend and lead the pair to navigate the region around the lower boundary of the descending channel around the support area for a pullback near 0.6575.

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 New Zealand dollar.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.11%	-0.14%	-0.17%	-0.14%	-0.08%	0.06%	-0.05%
EURO	0.11%		-0.08%	-0.11%	-0.07%	-0.04%	0.11%	0.01%
GBP	0.14%	0.08%		-0.11%	0.01%	0.05%	0.20%	0.10%
JPY	0.17%	0.11%	0.11%		0.03%	0.14%	0.24%	0.05%
CAD	0.14%	0.07%	-0.01%	-0.03%		-0.03%	0.19%	-0.03%
AUD	0.08%	0.04%	-0.05%	-0.14%	0.03%		0.15%	0.03%
NZD	-0.06%	-0.11%	-0.20%	-0.24%	-0.19%	-0.15%		-0.10%
CHF	0.05%	-0.01%	-0.10%	-0.05%	0.03%	-0.03%	0.10%

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 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.

VaselineSeptember 16, 2024

0 6 minutes read