Australian Dollar rises due to risk-on sentiment amid increasing odds of a Fed rate cut
- The AUD/USD pair appreciates as US data reinforce the likelihood that the Fed will lower interest rates next week.
- The US Producer Price Index rose above expectations, driven by higher service costs.
- Fed is expected to deliver a 25-basis points interest rate cut at its September meeting.
The AUD/USD extends its upside for the third successive session on Friday as economic data from the United States (US) reinforced the possibility that the Federal Reserve (Fed) would lower interest rates next week.
The US Labor Department reported that Initial Jobless Claims for the previous week increased as anticipated, surpassing the previous week’s figures. Additionally, US factory inflation rose above expectations, driven by higher service costs.
August’s US Consumer Price Index (CPI) data showed that headline inflation dropped to a three-year low, although core inflation exceeded expectations. This development has heightened the likelihood that the Federal Reserve (Fed) will begin its easing cycle with a 25-basis points interest rate cut in September. Investors shift their focus to the Michigan Consumer Sentiment Index, which is scheduled for Friday.
Daily Digest Market Movers: Australian Dollar extends upside due to improved risk sentiment
- The US Producer Price Index (PPI) rose to 0.2% month-on-month in August, exceeding the forecasted 0.1% increase and the previous 0.0%. Meanwhile, core PPI accelerated to 0.3% MoM, against the expected 0.2% rise and July’s 0.2% contraction.
- US Initial Jobless Claims rose slightly higher for the week ended September 6, increasing to the expected 230K from the prior 228K reading.
- The former Reserve Bank of Australia (RBA) Governor Bernie Fraser criticized the current RBA Board for being overly focused on inflation at the expense of the job market. Fraser suggested that the Board should lower the cash rate, warning of "recessionary risks" that could have severe consequences for employment.
- Australia’s Consumer Inflation Expectations eased to 4.4% in September, down slightly from August's four-month high of 4.5%. This decline highlights the central bank's efforts to balance bringing inflation down within a reasonable timeframe and maintaining gains in the labor market.
- The US Consumer Price Index dipped to 2.5% year-on-year in August, from the previous reading of 2.9%. The index has fallen short of the expected 2.6% reading. Meanwhile, headline CPI stood at 0.2% MoM.
- US core CPI ex Food & Energy, remained unchanged at 3.2% YoY. On a monthly basis, core CPI rose to 0.3% from the previous 0.2% reading.
- The first US presidential debate between former President Donald Trump and Democratic nominee Kamala Harris in Pennsylvania was won by Harris, according to a CNN poll. The debate began with a critical focus on the economy, inflation, and economic policies.
- On Wednesday, Sarah Hunter, the Reserve Bank of Australia's (RBA) Assistant Governor for Economics, remarked that high interest rates are suppressing demand, which is expected to lead to a mild economic downturn. Hunter also pointed out that the labor market remains tight relative to full employment levels, with employment growth projected to continue, though slower than population growth, according to Reuters.
Technical Analysis: Australian Dollar moves above 0.6700, nine-day EMA
The AUD/USD pair trades near 0.6730 on Friday. Technical analysis of the daily chart indicates that the pair has broken above the descending channel, signaling a weakening bearish bias. Additionally, the 14-day Relative Strength Index (RSI) has moved above the 50 level, suggesting a shift in momentum from a bearish to a bullish trend.
On the upside, the AUD/USD pair may explore the region around its seven-month high of 0.6798, aligned with a psychological level of 0.6800.
On the downside, the AUD/USD pair could find immediate support around the upper boundary of the descending channel near 0.6720, followed by the nine-day Exponential Moving Average (EMA) at 0.6707 level.
A return to the descending channel would reinforce the bearish bias and lead the pair to navigate the region around the lower boundary of the descending channel around 0.6600, followed by the throwback support zone near 0.6575.
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 New Zealand Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.12% | -0.16% | -0.48% | -0.07% | -0.05% | -0.09% | -0.21% | |
| EUR | 0.12% | -0.06% | -0.38% | 0.03% | 0.07% | 0.10% | -0.09% | |
| GBP | 0.16% | 0.06% | -0.30% | 0.06% | 0.12% | 0.17% | -0.05% | |
| JPY | 0.48% | 0.38% | 0.30% | 0.41% | 0.43% | 0.46% | 0.28% | |
| CAD | 0.07% | -0.03% | -0.06% | -0.41% | 0.00% | 0.09% | -0.14% | |
| AUD | 0.05% | -0.07% | -0.12% | -0.43% | -0.01% | 0.05% | -0.16% | |
| NZD | 0.09% | -0.10% | -0.17% | -0.46% | -0.09% | -0.05% | -0.21% | |
| CHF | 0.21% | 0.09% | 0.05% | -0.28% | 0.14% | 0.16% | 0.21% |
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
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.
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