Australian dollar appreciates despite weaker Chinese inflation data

VaselineSeptember 9, 2024

0 6 minutes read

Australian dollar appreciates despite weaker Chinese inflation data

The Aussie dollar gets support from the dovish stance around the RBA.
China’s consumer price index rose 0.6 percent from a year ago in August, from 0.5 percent in July, but below the market consensus of 0.7 percent.
The US dollar is receiving support from growing uncertainty over the likelihood of an aggressive Fed rate cut in September.

The Australian dollar (AUD) is recovering recent losses against the US dollar (USD) on driver sentiment around the Reserve Bank of Australia (RBA). RBA Governor Michele Bullock said last week it was too early to consider rate cuts. The board does not anticipate being able to lower rates in the near term.

The Australian dollar remains resilient despite weaker inflation data from China on Monday. China’s consumer price index (CPI) rose 0.6 percent year-on-year in August from 0.5 percent in July, but below the market consensus of 0.7 percent. On a monthly basis, CPI inflation rose 0.4% in August, down from 0.5% in July and weaker than the estimate of 0.5%. Given the close trade relationship between Australia and China, any changes in the Chinese economy could have a significant impact on Australian markets.

RBC Capital Markets now expects the Reserve Bank of Australia to implement a rate cut at its February 2025 meeting, earlier than its previous forecast of May 2025. Despite inflation in Australia remaining elevated above the RBA’s target, economic growth slow is not considered a sufficient reason. for a rate cut this year.

The US dollar received support as US economic data on Friday lifted uncertainty over the likelihood of an aggressive interest rate cut by the Federal Reserve (Fed) at its September meeting.

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. The probability of a 50 bps rate cut fell slightly to 29.0%, down from 30.0% a week ago.

Daily Digest Market Movers: Aussie heads higher on RBA calls

The US Bureau of Labor Statistics (BLS) reported that non-farm payrolls (NFP) added 142,000 jobs in August, below the forecast of 160,000, but an improvement from July’s downwardly revised figure of 89,000. Meanwhile, the unemployment rate fell to 4.2 percent, as expected, down from 4.3 percent the previous month.
Federal Reserve (Fed) Bank of Chicago President Austan Goolsbee noted on Friday that Fed officials are beginning to align with broader market sentiment that a policy rate adjustment by the US central bank is imminent, according to CNBC. FXStreet’s FedTracker, which uses a custom AI model to rate Fed officials’ speeches on a scale of 0 to 10, rated Goolsbee’s comments as upbeat, assigning them a score of 3.2.
ADP Employment Change showed on Thursday that private sector employment rose by 99,000 in August, following July’s increase of 111,000 and below the estimate of 145,000. Meanwhile, weekly US initial jobless claims rose to 227,000 for the week ended August 30, compared with the previous reading of 232,000 and below the initial consensus of 230,000.
Australia’s trade surplus widened to 6.009 million on the month in July, beating expectations of 5.150 million and 5.589 million in the previous reading.
US JOLTS job openings fell to 7.673 million in July, down from 7.910 million in June, marking the lowest level since January 2021 and below market expectations of 8.10 million.
Bank of America (BoA) revised its economic growth forecast for China, lowering its 2024 projection to 4.8% from 5.0% previously. For 2025, the forecast is adjusted to 4.5% growth, while the outlook for 2026 remains unchanged at 4.5%.
Australia’s Gross Domestic Product (GDP) posted a 0.2% QoQ reading, up from 0.1% in the previous quarter, but below expectations of 0.3%.

Technical analysis: The Australian dollar remains above the 50-day EMA near 0.6700

The Australian dollar is trading around 0.6680 for the month. On the daily chart, the AUD/USD pair remains below its nine-day exponential moving average (EMA), signaling a short-term bearish trend. Additionally, the 14-day Relative Strength Index (RSI) dipped below the 50 level, further confirming a bearish momentum.

On the downside, the AUD/USD pair is testing immediate support near the 50-day EMA at 0.6676. A decisive break below this point could strengthen the bearish trend, pushing the pair towards the retracement level around 0.6575. A deeper decline could target lower support around 0.6470.

In terms of resistance, the AUD/USD pair may encounter a barrier around the nine-day EMA at 0.6720. A break above this level could pave the way for a potential retest of the seven-month high at 0.6798.

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		0.02%	-0.04%	0.39%	-0.08%	-0.19%	-0.11%	0.07%
EURO	-0.02%		-0.11%	0.46%	-0.09%	-0.26%	-0.12%	0.03%
GBP	0.04%	0.11%		0.43%	0.02%	-0.14%	-0.05%	0.14%
JPY	-0.39%	-0.46%	-0.43%		-0.50%	-0.59%	-0.55%	-0.16%
CAD	0.08%	0.09%	-0.02%	0.50%		-0.07%	-0.05%	0.30%
AUD	0.19%	0.26%	0.14%	0.59%	0.07%		0.11%	0.25%
NZD	0.11%	0.12%	0.05%	0.55%	0.05%	-0.11%		0.17%
CHF	-0.07%	-0.03%	-0.14%	0.16%	-0.30%	-0.25%	-0.17%

The heat map shows the percentage changes of major currencies against each other. The base currency is chosen from the left column, while the quote 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 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.

VaselineSeptember 9, 2024

0 6 minutes read