Aussie inches higher on declining likelihood of anticipated RBA rate cuts

VaselineOctober 4, 2024

0 6 minutes read

Aussie inches higher on declining likelihood of anticipated RBA rate cuts

The Australian dollar appreciates as the RBA is expected to maintain its policy stance in November.
The commodity-linked AUD is getting support from stimulus measures from China, Australia’s biggest trading partner.
The risk-sensitive AUD/USD pair could struggle as US President Biden said Israel could strike Iran’s oil infrastructure.

The Australian Dollar (AUD) is gaining ground on the driver outlook around the Reserve Bank of Australia (RBA). Recent data showed that retail sales growth for August beat expectations, reducing the chances of an anticipated rate cut from the RBA. Markets have all but ruled out a rate cut in November. In addition, the AUD is benefiting from stimulus measures from China, Australia’s largest trading partner, which have boosted commodity prices.

The risk-sensitive AUD/USD pair could face headwinds as rising geopolitical tensions in the Middle East affect risk appetite. US President Joe Biden has said that the United States (US) is in discussions with Israel about potential attacks on Iran’s oil infrastructure. Israeli Prime Minister Benjamin Netanyahu warned that Iran “will pay a heavy price” for Tuesday’s attack, which involved the firing of at least 180 ballistic missiles into Israel, according to the BBC.

The Australian dollar came under pressure as the US dollar (USD) gained strength following better-than-expected US ISM PMI and ADP employment reports that challenged accommodative expectations for the Federal Reserve’s monetary policy (Fed). Traders are now looking to Friday’s US employment data, including non-farm payrolls (NFP) and average hourly earnings, for further direction.

Daily Digest Market Movers: Aussie gets support from dovish sentiment around RBA

The CME FedWatch tool indicates that markets assign a 67.4% probability of a 25 basis point rate cut by the Federal Reserve in November, while the probability of a 50 basis point cut is 32.6% , down from 35.2% a day ago.
Federal Reserve Bank of Chicago President Austan Goolsbee reiterated Thursday that interest rates need to come down “very much” in the coming year. Goolsbee also said he would like to keep the unemployment rate at 4.2 percent from rising further.
The US ISM services PMI rose to 54.9 in September from 51.5 in August and beating the market forecast of 51.7. Meanwhile, the Index of Prices Paid for Services, a key indicator of inflation, rose to 59.4 from 57.3.
Australia’s trade balance for August was 5,644 million month-on-month, beating market expectations of 5,500 million and slightly higher than July’s surplus of 5,636 million. However, both exports and imports fell 0.2% month-on-month in August.
Australia’s Judo Bank Services Purchasing Managers’ Index (PMI) read 50.5 in September, down from 52.5 in August. This marks the eighth consecutive month of growth in services activity, albeit at a slower and marginal pace. Meanwhile, the composite PMI fell slightly to 49.6 in September, compared with 49.8 the previous month, data showed on Thursday.
Federal Reserve Bank of Richmond President Tom Barkin on Wednesday addressed the Fed’s recent rate actions, warning that the fight against inflation may not be over as risks still linger. Barkin noted that September’s 50 basis point (bps) rate cut was justified because rates had become “out of sync” with falling inflation while the unemployment rate was close to its sustainable level.
The ADP Employment Change report showed an increase of 143,000 jobs in September, beating the forecast of 120,000 jobs. In addition, annual salary increased by 4.7% year-over-year. The total number of jobs added in August was revised up from 99,000 to 103,000.
On Monday, Federal Reserve (Fed) Chairman Jerome Powell said the central bank is in no rush and will cut its benchmark rate “over time.” Powell added that the recent half-point interest rate cut should not indicate similarly aggressive future action, noting that future rate changes are likely to be more modest.

Technical analysis: Australian dollar remains below 0.6850, nine-day EMA

AUD/USD is trading near 0.6840 on Friday. Technical analysis of the daily chart indicates that the pair is positioned below the ascending channel, signaling the emergence of a bullish bias. However, a move back into the channel would reinforce bullish sentiment as the 14-day Relative Strength Index (RSI) remains above the 50 level, suggesting bullish momentum is still present.

In terms of resistance, the pair could test the immediate nine-day exponential moving average (EMA) at 0.6857, followed by the lower boundary of the ascending channel at 0.6910. A return to the ascending channel would strengthen the uptrend and support the AUD/USD pair to explore the area around the upper limit of the channel at the 0.7040 level.

On the downside, the AUD/USD pair could target a psychological level of 0.6800. A break below this level could push the pair to cruise in the region around its seven-week low of 0.6622, recorded on September 11.

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 euro.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		0.03%	-0.05%	-0.31%	-0.03%	-0.09%	-0.04%	-0.05%
EURO	-0.03%		-0.06%	-0.32%	-0.03%	-0.12%	-0.05%	-0.10%
GBP	0.05%	0.06%		-0.27%	0.04%	-0.06%	-0.00%	-0.05%
JPY	0.31%	0.32%	0.27%		0.29%	0.22%	0.25%	0.22%
CAD	0.03%	0.03%	-0.04%	-0.29%		-0.08%	0.00%	-0.08%
AUD	0.09%	0.12%	0.06%	-0.22%	0.08%		0.05%	-0.02%
NZD	0.04%	0.05%	0.00%	-0.25%	-0.01%	-0.05%		-0.07%
CHF	0.05%	0.10%	0.05%	-0.22%	0.08%	0.02%	0.07%

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 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 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.

VaselineOctober 4, 2024

0 6 minutes read