- Australian Dollar could extend gains on the hawkish tone of RBA Governor Bullock.
- Australia’s chief policymaker highlighted that the inflation challenge is fueled by domestic demand.
- US Dollar experiences downward pressure on the growing likelihood of further rate hikes by the Fed.
- Improved US Treasury yields could provide support to underpinning the Greenback.
The Australian Dollar (AUD) struggles to continue the gains as the US Dollar recovers recent losses on Friday. However, the US Dollar (USD) experienced a modest drop on Thursday in a low-volume session, given the closure of United States (US) markets for Thanksgiving.
Australia’s Dollar experiences upward support despite Australian PMI hitting multi-month lows. This could be attributed to the hawkish comments from Reserve Bank of Australia (RBA) Governor Michele Bullock. Bullock highlighted that the inflation challenge is increasingly fueled by domestic factors, especially demand. Emphasizing that monetary policy tightening is the suitable response to demand-driven inflation.
The US Dollar Index (DXY) appears to be on a downward trend despite the improvement in US Treasury yields. The growing likelihood of no further interest rate hikes by the Federal Reserve (Fed) contributes to the risk-on factor, which might be undermining the Greenback as market dynamics adjust to the evolving expectations regarding Fed policy.
In the economic calendar, the US S&P Global PMI data are set to be released on Friday, with a slight expected decline in the Services sector from 50.6 to 50.4 and in the Manufacturing sector from 50.0 to 49.8.
Daily Digest Market Movers: Australian Dollar gains ground on hawkish RBA tone, less expectations of Fed rate hikes
- The preliminary Judo Bank Manufacturing PMI (MoM) declined to 47.7 in November, as compared to the previous month’s 48.2. Judo Bank Services PMI eased to 46.3 from the prior 47.9, and the Composite PMI decreased to 46.4 from the previous reading of 47.6.
- RBA Governor Michele Bullock mentioned that prices are rising strongly for most goods and services, and service costs are increasing due to high demand. RBA’s liaison with firms indicates persistent domestic cost pressures, with high capacity utilization and a tight labor market.
- National Australia Bank (NAB) anticipates another RBA rate hike, expecting it to occur at the February 2024 meeting.
- RBA’s meeting minutes revealed that the board acknowledged a “credible case” against an immediate rate hike but considered the case for tightening stronger due to increased inflation risks. The decision on further tightening would hinge on data and risk assessment.
- RBA’s minutes also stressed the importance of preventing even a modest rise in inflation expectations. Board forecasts assumed one or two more rate rises, and rising house prices suggested policy might not be overly restrictive.
- The Federal Open Market Committee (FOMC) meeting minutes reveal that members would entertain the idea of tightening monetary policy further if incoming information suggests insufficient progress toward the Committee’s inflation objective.
- FOMC members unanimously agree that policy should stay restrictive for some time until there is clear and sustainable evidence of inflation moving down toward the Committee’s target.
- US Jobless Claims showed a greater-than-expected decline in the week ending on November 17, with Initial Claims falling to 209K from 233K.
- US Durable Goods Orders fell 5.4% in October, exceeding the expected 3.1% decline.
- US University of Michigan Consumer Sentiment Index for November stood at 61.3, compared to the expected reading of 60.5.
Technical Analysis: Australian Dollar moves back toward 0.6550
The Australian Dollar hovers around the 0.6560 level on Friday. The AUD/USD pair has successfully surpassed the barrier at the significant 0.6550 level, paving the way for a potential revisit to the three-month high at 0.6589, situated around the psychological resistance of 0.6600. On the downside, the seven-day Exponential Moving Average (EMA) at 0.6536 could serve as crucial support, followed by the 23.6% Fibonacci retracement at 0.6514. A breach below this level might lead the pair to test the major support at the 0.6500 level.
AUD/USD: Daily Chart
Australian Dollar price today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.08% | 0.05% | 0.08% | 0.10% | -0.07% | 0.02% | 0.02% | |
| EUR | -0.08% | -0.03% | 0.01% | 0.03% | -0.14% | -0.06% | -0.06% | |
| GBP | -0.05% | 0.02% | 0.04% | 0.05% | -0.11% | -0.04% | -0.04% | |
| CAD | -0.09% | -0.02% | -0.04% | 0.02% | -0.15% | -0.07% | -0.07% | |
| AUD | -0.11% | -0.03% | -0.05% | -0.02% | -0.18% | -0.08% | -0.08% | |
| JPY | 0.06% | 0.13% | 0.10% | 0.14% | 0.16% | 0.09% | 0.09% | |
| NZD | 0.01% | 0.05% | 0.03% | 0.08% | 0.08% | -0.08% | 0.00% | |
| CHF | -0.02% | 0.06% | 0.03% | 0.07% | 0.08% | -0.09% | -0.01% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
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