Australian Dollar remains above a major level ahead of FOMC minutes

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  • Australian Dollar gains ground as Governor Bullock stated that inflation is a challenge.
  • Australia’s central bank is optimistic that the progress in employment can be sustained.
  • Chinese authorities are expected to provide additional stimulus measures to support the real estate sector.
  • US Dollar weakens on improved risk appetite and lower US Treasury yields.

The Australian Dollar (AUD) extends its gains for the third successive session on Tuesday. This rally is fueled by the hawkish comments made by the Reserve Bank of Australia (RBA) Governor Michele Bullock. Furthermore, the AUD/USD pair is finding support from the hawkish tone found in the RBA’s November meeting minutes, rising commodity prices, and reflecting investor optimism about potential additional stimulus measures in China.

Australia’s labor market appears robust, as indicated by Governor Bullock. She believes that the progress in employment can be sustained. Moreover, Bullock notes that underlying demand, rather than just supply issues, is contributing to the inflation challenge, making it a significant concern for the next one or two years.

The Reserve Bank of Australia’s November meeting minutes reveal 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. The minutes stressed the importance of preventing even a modest rise in inflation expectations. Staff forecasts assumed one or two more rate rises, and rising house prices suggested policy might not be overly restrictive.

According to sources cited by Bloomberg, Chinese authorities are expected to take measures to support the real estate sector by drafting a list of 50 eligible developers, both private and state-owned. This list is expected to guide financial institutions in providing support through various means such as bank loans, debt, and equity financing.

US Dollar Index (DXY) extended its decline, nearing three-month lows due to improved risk appetite and lower US Treasury yields. Despite the growth in the United States (US) economy, the Greenback finds itself in a vulnerable position in the short term.

Investors will likely focus on Existing Home Sales and the Chicago Fed National Activity Index from the US. Additionally, the Federal Reserve (Fed) is set to release the minutes from its recent meeting.

Daily Digest Market Movers: Australian Dollar continues to gain ground on hawkish RBA tone

  • Australia’s seasonally adjusted Employment Change reported an increase of 55K in October, compared with the market anticipation of 20K and 6.7K in the previous month.
  • The Aussie Unemployment Rate came in at 3.7% in October as expected against the previous figure of 3.6%.
  • Australia’s Wage Price Index grew 1.3% as expected compared to the previous reading of 0.8%. The year-over-year data showed an increase of 4.0% more than the anticipated 3.9%.
  • The Reserve Bank of Australia (RBA) Assistant Governor Marion Kohler stated that inflation is expected to decrease but won’t hit the RBA’s 2-3% target until the end of 2025.
  • The People’s Bank of China (PBoC) kept its loan prime rate (LPR) unchanged at 3.45% as expected.
  • Boston Federal Reserve (Fed) President Susan Collins expressed optimism on Friday that the Fed can lower inflation without causing significant damage to the labor market by being “patient” with further interest rate moves.
  • The October’s US Consumer Price Index (CPI) showed lower readings than expected, with the annual rate slowing from 3.7% to 3.2%, falling below the consensus forecast of 3.3%. The monthly CPI reduced to 0.0% from 0.4%.
  • The US Core CPI rose by 0.2% below the expectations of 0.3%, and the annual rate decreased to 4.0% from 4.1% prior.

Technical Analysis: Australian Dollar moves above 0.6550, supported by the 23.6% Fibonacci retracement

The Australian Dollar trades higher around the 0.6570 level on Tuesday. The AUD/USD pair may encounter resistance near the psychological level of 0.6600. On the downside, immediate support is anticipated around the psychological level at 0.6550, followed by the 23.6% Fibonacci retracement at 0.6500. If a break occurs below the level, the nine-day Exponential Moving Average (EMA) at 0.6493 could be the next support.

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 strongest against the Canadian Dollar.

USD   -0.09% -0.14% 0.01% -0.05% -0.38% -0.27% -0.11%
EUR 0.08%   -0.04% 0.10% 0.01% -0.31% -0.19% -0.02%
GBP 0.14% 0.06%   0.15% 0.06% -0.25% -0.13% 0.04%
CAD -0.01% -0.10% -0.14%   -0.09% -0.40% -0.29% -0.11%
AUD 0.06% -0.01% -0.06% 0.09%   -0.32% -0.20% 0.00%
JPY 0.38% 0.28% 0.24% 0.39% 0.30%   0.08% 0.29%
NZD 0.28% 0.19% 0.14% 0.29% 0.21% -0.11%   0.17%
CHF 0.10% 0.02% -0.04% 0.11% 0.02% -0.29% -0.17%  

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).

Australian Dollar FAQs

One of the most significant 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 driver 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 inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for 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 goal 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 credit conditions, with the former AUD-negative and the latter AUD-positive.

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting 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. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

The Trade Balance, 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 gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.