Australian dollar appreciates after PBoC injects liquidity, lower PMI data

VaselineSeptember 23, 2024

0 6 minutes read

Australian dollar appreciates after PBoC injects liquidity, lower PMI data

The Australian dollar is getting support from bullish sentiment surrounding the RBA’s upcoming monetary policy decision.
The AUD could have received support as the PBoC injected liquidity into the banking system.
The AUD/USD pair remains solid as the RBA is expected to keep the Official Cash Rate steady at 4.35% on Tuesday.

The Australian Dollar (AUD) is gaining ground against the US Dollar (USD) despite weaker Purchasing Managers’ Index (PMI) data out on Monday. The AUD/USD pair is likely appreciating due to the injection of liquidity into the banking system by the People’s Bank of China (PBoC). As close trading partners, developments in the Chinese economy can have a substantial impact on Australian markets.

The People’s Bank of China (PBoC) injected CNY 74.5 billion in liquidity into the banking system through a 14-day reverse repo, the rate lowered to 1.85% from 1.95%. In addition, China’s central bank also injected CNY160.1 billion in liquidity through a 7-day reverse repo, with the rate unchanged at 1.7%.

The AUD could also gain ground on dovish expectations of the Reserve Bank of Australia’s (RBA) upcoming interest rate decision scheduled for Tuesday. The RBA is expected to keep the official cash rate (OCR) steady at 4.35%, supported by strong labor market data and continued inflationary pressures.

The US dollar (USD) could depreciate as Federal Reserve (Fed) policymakers forecast further cuts of 75 basis points (bps) in 2024 after an aggressive 50 basis point rate cut to a range of 4.75-5.00% last week.

Daily Digest Market Movers: Aussie remains firm on dovish sentiment around RBA

Australian Treasurer Jim Chalmers is working to establish a new monetary policy board at the Reserve Bank of Australia, but needs the support of the Green Party to move forward. The Greens have said they will only support changes to the RBA if there is a commitment to cut interest rates.
Philadelphia Fed President Patrick Harker said Friday that the U.S. central bank has effectively steered through a challenging economic landscape in recent years. Harker compared monetary policy to driving a bus, where balancing speed is essential.
Australia’s Judo Bank composite PMI fell to 49.8 in September from 51.7 in August, pointing to a contraction in business activity as slower growth in the services sector failed to offset a deeper decline in manufacturing output. The services PMI fell to 50.6 in September from 52.5 previously, while the manufacturing PMI fell to 46.7 from 48.5 in August.
On Friday, the People’s Bank of China (PBoC) opted to keep its one-year and five-year prime lending rates (LPR) at 3.35 percent and 3.85 percent, respectively.
The Commonwealth Bank (CBA) has adjusted its expectations for the Reserve Bank of Australia’s first rate cut by 25 basis points, moving it from November 2024 to December 2024. This change follows a robust employment rate and a continued “solicitous” outlook from the central bank. , according to Yahoo Finance.
Labor change in Australia came in at 47.5K in August, down from 48.9K (revised from 58.2K) in July, but well above the consensus forecast of 25.0K. The unemployment rate was steady at 4.2% in August, in line with both expectations and the previous month’s figure, according to data released by the Australian Bureau of Statistics (ABS).
Reserve Bank of Australia (RBA) Governor Michele Bullock stressed it was premature to consider rate cuts given persistently high inflation. In addition, RBA Deputy Governor Sarah Hunter noted that while the labor market remains tight, wage growth appears to have peaked and is expected to slow further.

Technical analysis: Aussie remains above 0.6800 as it tries to return to the ascending channel

AUD/USD is trading near 0.6820 for the month. Technical analysis of the daily chart indicates that the pair is testing the lower limit of the ascending channel pattern, suggesting a weakening of the bullish bias. However, the 14-day Relative Strength Index (RSI) is still above 50, so further price movement from the contest area will provide a clearer indication of the pair’s trend.

With AUD/USD currently testing the lower boundary of the ascending channel near the nine-month high of 0.6839 reached on September 19, a bounce above this level could propel the pair towards the upper boundary of the ascending channel around the of 0.6890. .

On the downside, AUD/USD may find support around the nine-day EMA at 0.6771, with the next key support at the psychological level of 0.6700. A break below the latter could lead the pair to a six-week low at 0.6622.

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		0.00%	0.07%	0.26%	-0.02%	-0.22%	-0.04%	0.13%
EURO	-0.01%		0.01%	0.26%	-0.02%	-0.29%	-0.03%	0.11%
GBP	-0.07%	-0.01%		0.33%	-0.03%	-0.30%	-0.06%	0.10%
JPY	-0.26%	-0.26%	-0.33%		-0.29%	-0.57%	-0.29%	-0.25%
CAD	0.02%	0.02%	0.03%	0.29%		-0.15%	-0.01%	0.13%
AUD	0.22%	0.29%	0.30%	0.57%	0.15%		0.27%	0.40%
NZD	0.04%	0.03%	0.06%	0.29%	0.01%	-0.27%		0.14%
CHF	-0.13%	-0.11%	-0.10%	0.25%	-0.13%	-0.40%	-0.14%

The heatmap 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 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 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 23, 2024

0 6 minutes read