Aussie dollar holds position with positive sentiment due to RBA calls

VaselineAugust 21, 2024

0 5 minutes read

Aussie dollar holds position with positive sentiment due to RBA calls

The Aussie dollar may extend its gains as RBA minutes pointed to current cash rates for longer.
Minutes from the RBA’s August meeting suggested a rate cut was unlikely anytime soon.
The US dollar could get support from caution ahead of Wednesday’s FOMC minutes.

The Australian dollar (AUD) is holding ground, looking to extend its gains against the US dollar (USD) on Wednesday. The strength of the AUD/USD pair is strengthened after the Reserve Bank of Australia’s (RBA) August meeting minutes indicated that the cash rate may remain unchanged for an extended period.

The RBA minutes also showed that the board considered a rate hike earlier this month, before ultimately deciding that holding current rates would better balance risks. Furthermore, RBA members agreed that a rate cut was unlikely in the near future.

The US dollar (USD) is trying to stop its losing streak as traders turn cautious ahead of the release of the FOMC minutes on Wednesday. In addition, traders await Fed Chairman Jerome Powell’s upcoming speech in Jackson Hole on Friday.

Daily Digest Market Movers: Aussie remains firm following RBA minutes

Federal Reserve (Fed) Governor Michelle Bowman on Tuesday expressed caution about making any policy changes, citing rising inflation risks. Bowman warned that overreacting to individual data points could undermine progress already made, according to Reuters.
China is exploring a new approach to shore up its struggling housing market by allowing local governments to use special bonds to buy unsold properties. Local governments have already used more than half of this year’s CNY 3.9 trillion ($546 billion) bond allocation, and it is unclear how much of the remaining funds could be redirected to housing purchases if the plan is implemented, according to Bloomberg.
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.
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.
RBA Governor Michele Bullock has expressed that the Australian central bank will not hesitate to raise interest rates again to combat inflation if necessary. The comments came just days after the RBA kept rates steady at 4.35% for the sixth consecutive meeting.

Technical analysis: Australian dollar nears 0.6750, targets seven-month highs

The Australian dollar is trading around 0.6750 on Wednesday. Daily chart analysis shows that the AUD/USD pair is trending upward in an ascending channel, reinforcing an uptrend. Additionally, the 14-day Relative Strength Index (RSI) is slightly below the 70 mark, supporting ongoing bullish momentum. However, a subsequent upward move could indicate that the currency pair is overbought, which may lead to a correction.

On the upside, AUD/USD could test a seven-month high of 0.6798, followed by the upper limit of the ascending channel at 0.6820.

For support, the pair may find support around the lower boundary of the ascending channel, which is aligned with the nine-day exponential moving average (EMA) at the 0.6670 level. A drop below the nine-day EMA could see the pair test the retracement level at 0.6575, followed by the next 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 Japanese yen.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.08%	0.06%	0.15%	-0.00%	0.01%	0.06%	-0.03%
EURO	-0.08%		-0.04%	0.05%	-0.09%	-0.05%	-0.04%	-0.11%
GBP	-0.06%	0.04%		0.11%	-0.03%	-0.04%	0.00%	-0.06%
JPY	-0.15%	-0.05%	-0.11%		-0.14%	-0.12%	-0.14%	-0.17%
CAD	0.00%	0.09%	0.03%	0.14%		0.03%	0.03%	-0.02%
AUD	-0.01%	0.05%	0.04%	0.12%	-0.03%		0.00%	-0.04%
NZD	-0.06%	0.04%	0.00%	0.14%	-0.03%	-0.00%		-0.05%
CHF	0.03%	0.11%	0.06%	0.17%	0.02%	0.04%	0.05%

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 increasing 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 21, 2024

0 5 minutes read