Aussie dollar gains on risk-on sentiment amid increasing chances of Fed rate cut

VaselineSeptember 13, 2024

0 5 minutes read

Aussie dollar gains on risk-on sentiment amid increasing chances of Fed rate cut

AUD/USD is up as US data reinforces the likelihood that the Fed will cut interest rates next week.
The US producer price index rose more than expected, driven by higher costs of services.
The Fed is expected to cut interest rates by 25 basis points at its September meeting.

AUD/USD extended for a third straight session on Friday as economic data from the United States (US) strengthened the possibility that the Federal Reserve (Fed) will cut interest rates next week.

The US Labor Department reported that initial jobless claims for the previous week rose as expected, beating the previous week’s numbers. In addition, US factory inflation rose more than expected, driven by higher service costs.

US consumer price index (CPI) data for August showed headline inflation fell to a three-year low, although core inflation beat expectations. This development has increased the likelihood that the Federal Reserve (Fed) will begin its easing cycle with a 25 basis point interest rate cut in September. Investors are turning their attention to the Michigan consumer sentiment index, which is scheduled for Friday.

Daily Digest Market Movers: Australian dollar extends higher on improved risk sentiment

The U.S. producer price index (PPI) rose 0.2% month-on-month in August, beating forecasts for a 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 the 0.2% contraction in July.
US initial jobless claims rose slightly in the week ended September 6, rising to an expected 230,000 from the previous reading of 228,000.
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%. Meanwhile, headline CPI was 0.2% on the month.
Core US CPI, excluding food and energy, was unchanged at 3.2% y-o-y. On a monthly basis, the core CPI rose to 0.3% from the previous reading of 0.2%.
The first US presidential debate between former President Donald Trump and Democratic nominee Kamala Harris of Pennsylvania has been won by Harris, according to a CNN poll. The debate began with a critical focus on the economy, inflation and economic policies.
On Wednesday, Reserve Bank of Australia (RBA) deputy governor for economics Sarah Hunter noted that high interest rates are suppressing demand, which is expected to lead to a mild economic recession. Hunter also pointed out that the labor market remains tight relative to employment levels, with employment growth expected to continue, albeit slower than population growth, according to Reuters.

Technical analysis: The Australian dollar is moving above 0.6700, the nine-day EMA

AUD/USD is trading near 0.6730 on Friday. Technical analysis of the daily chart indicates that the pair has broken above the descending channel, signaling a bearish trend. Additionally, the 14-day Relative Strength Index (RSI) has moved above the 50 level, suggesting a change in momentum from a bearish to an uptrend.

On the other hand, the AUD/USD pair may explore the region around its seven-month high of 0.6798, aligned with a psychological level of 0.6800.

On the downside, AUD/USD could find immediate support around the upper boundary of the descending channel near 0.6720, followed by the nine-day EMA at 0.6707.

A return to the descending channel would strengthen the bearish trend and lead the pair to navigate the region around the lower boundary of the descending channel around 0.6600, followed by the support area for the reversal 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		-0.12%	-0.16%	-0.48%	-0.07%	-0.05%	-0.09%	-0.21%
EURO	0.12%		-0.06%	-0.38%	0.03%	0.07%	0.10%	-0.09%
GBP	0.16%	0.06%		-0.30%	0.06%	0.12%	0.17%	-0.05%
JPY	0.48%	0.38%	0.30%		0.41%	0.43%	0.46%	0.28%
CAD	0.07%	-0.03%	-0.06%	-0.41%		0.00%	0.09%	-0.14%
AUD	0.05%	-0.07%	-0.12%	-0.43%	-0.01%		0.05%	-0.16%
NZD	0.09%	-0.10%	-0.17%	-0.46%	-0.09%	-0.05%		-0.21%
CHF	0.21%	0.09%	0.05%	-0.28%	0.14%	0.16%	0.21%

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 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 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 13, 2024

0 5 minutes read