Australian Dollar appreciates as traders expect RBA to keep current rates unchanged
by Akhtar Faruqui · FXStreet- The Australian Dollar hovers near a nine-month high of 0.6839; RBA is expected to maintain rates at 4.35%.
- The ANZ-Roy Morgan Australia Consumer Confidence Index increased by 0.8 points this week, reaching 84.9.
- The US Dollar faces challenges as Fed policymakers project additional rate cuts in 2024.
The Australian Dollar (AUD) inches higher against the US Dollar (USD) ahead of the Reserve Bank of Australia’s (RBA) policy decision scheduled for Tuesday. The RBA is expected to maintain the Official Cash Rate (OCR) at 4.35%, citing strong labor market conditions and persistent inflationary pressures. Market projections suggest no rate cut before December, with some analysts predicting the first adjustment could occur as late as February or even in the second quarter of 2025.
The ANZ-Roy Morgan Australia Consumer Confidence Index rose by 0.8 points to 84.9 this week. Despite this increase, Consumer Confidence has now remained below the 85.0 mark for 86 consecutive weeks. On a year-over-year basis, the index is up by 8.5 points from 76.4.
The US Dollar (USD) could face challenges as Federal Reserve (Fed) officials forecast further rate cuts totaling 50 basis points (bps) in 2024, following an aggressive 50 bps cut last week. Supporting this outlook, Minneapolis Fed President Neel Kashkari stated on Monday that he expects and supports additional rate cuts in the coming year, per Reuters.
Daily Digest Market Movers: Australian Dollar maintains position due to hawkish mood surrounding the RBA
- According to the CME FedWatch Tool, markets are pricing in a 50% chance of 75 basis points to be deducted by the Fed to a range of 4.0-4.25% by the end of this year.
- The S&P Global Composite Purchasing Managers Index (PMI) grew at a slower rate in September, registering 54.4 compared to 54.6 in August. The Manufacturing PMI unexpectedly dropped to 47.0, indicating contraction, while the Services PMI expanded more than anticipated, reaching 55.4.
- Chicago Fed President Austan Goolsbee noted, “Many more rate cuts are likely needed over the next year, rates need to come down significantly.” Additionally, Atlanta Fed President Raphael Bostic said Monday that the US economy is close to normal rates of inflation and unemployment and the central bank needs monetary policy to "normalize" as well, per Reuters.
- The People’s Bank of China (PBoC) injected CNY 74.5 billion in liquidity into the banking system via a 14-day reverse repo, with the rate lowered to 1.85% from 1.95%. Additionally, the Chinese central bank also injected CNY 160.1 billion in liquidity via a 7-day reverse repo, with the rate unchanged at 1.7%.
- Australian Treasurer Jim Chalmers is working to establish a new monetary policy board at the Reserve Bank of Australia, but he needs the support of the Greens Party to move forward. The Greens have stated they will only back changes at the RBA if there is a commitment to lowering interest rates.
- Australia’s Judo Bank Composite PMI declined to 49.8 in September from 51.7 in August, indicating a contraction in business activity as slower growth in the services sector was unable to counterbalance a deeper slump in manufacturing output. The Services PMI fell to 50.6 in September from 52.5 previously, while the Manufacturing PMI decreased to 46.7 from 48.5 in August.
- Commonwealth Bank (CBA) has adjusted its expectation for the first Reserve Bank of Australia rate cut of 25 basis points, moving it from November 2024 to December 2024. This shift follows a robust employment rate and a continued "hawkish" outlook from the central bank, according to Yahoo Finance.
- Australian Employment Change 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 remained 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 emphasized that it is premature to consider rate cuts given the persistently high inflation. Additionally, RBA Assistant Governor Sarah Hunter noted that while the labor market remains tight, wage growth seems to have peaked and is expected to slow further.
Technical Analysis: Australian Dollar hovers around a nine-month high near 0.6840
The AUD/USD pair trades near 0.6840 on Tuesday. Technical analysis of the daily chart indicates that the pair is moving upward within the ascending channel pattern, suggesting a bullish bias. Additionally, the 14-day Relative Strength Index (RSI) is positioned above 50, confirming the ongoing bullish trend.
The AUD/USD pair is currently testing the nine-month high of 0.6839, last reached on September 19. A breakout above this level could drive the pair toward the upper boundary of the ascending channel, around the 0.6910 mark.
On the downside, the AUD/USD pair could find support at the lower boundary of the ascending channel, which coincides with the nine-day Exponential Moving Average (EMA) at 0.6788. The next significant support is at the psychological level of 0.6700. A break below this level could push the pair further down toward its six-week low of 0.6622.
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 Euro.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.03% | -0.02% | -0.01% | -0.14% | -0.13% | -0.00% | -0.12% | |
| EUR | -0.03% | -0.04% | -0.03% | -0.21% | -0.16% | -0.04% | -0.15% | |
| GBP | 0.02% | 0.04% | 0.02% | -0.11% | -0.10% | -0.00% | -0.10% | |
| JPY | 0.01% | 0.03% | -0.02% | -0.12% | -0.14% | -0.04% | -0.11% | |
| CAD | 0.14% | 0.21% | 0.11% | 0.12% | 0.02% | 0.15% | 0.03% | |
| AUD | 0.13% | 0.16% | 0.10% | 0.14% | -0.02% | 0.12% | 0.01% | |
| NZD | 0.00% | 0.04% | 0.00% | 0.04% | -0.15% | -0.12% | -0.09% | |
| CHF | 0.12% | 0.15% | 0.10% | 0.11% | -0.03% | -0.01% | 0.09% |
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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
Australian Dollar FAQs
What key factors drive the Australian Dollar?
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.
How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?
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.
How does the health of the Chinese Economy impact the Australian Dollar?
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.
How does the price of Iron Ore impact the Australian Dollar?
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.
How does the Trade Balance impact the Australian Dollar?
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.
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