Australian Dollar sees a slight increase post-RBA decision
- AUD got some momentum after RBA’s hawkish hold.
- Governor Lowe confirmed that the bank has no rush on rate cuts.
- Markets are now pricing in a 25 bps cut by year-end.
The AUD/USD pair is trading around 0.6500, up around 0.30% on the day. The Australian Dollar is benefiting from the Reserve Bank of Australia (RBA) hawkish hold. The RBA left its policy rate unchanged as expected on Tuesday, but Governor Philip Lowe said that no rate cut is on the table in the near term. This has helped to support the Australian Dollar, as it suggests that the RBA is not as dovish as some had expected.
Despite continuous high inflation rates, the data now presents considerable weaknesses in the Australian economy. This revelation has altered market expectations from anticipating a probable RBA rate hike to now considering a rate cut by the year-end.
Market Movers Daily Digest: AUD shows resilience as markets react to RBA's hawkish hold
- The Reserve Bank of Australia distinctly announced its decision to maintain the rates at 4.35%, emphasizing that "the Board is not ruling anything in or out."
- The RBA also stressed the necessity to stay alert for potential inflation risks.
- Notably, updated macro forecasts predict inflation will persist longer, with trimmed mean and headline CPI inflation anticipated to approach the midpoint of the 2-3% band by December 2026 as compared to the June 2026 forecasts in the earlier May forecasts.
- Dovish bets backed away, and markets are now only pricing in 25 bps of RBA easing in 2024.
AUD/USD technical analysis: Bearish sentiment persists, deceleration noted
The AUD/USD pair demonstrated continued fluctuations close to the 0.6500 level. The pair occasionally reflected resistance to the 0.6550 level and support at 0.6400. The trading volume remained steady in recent sessions, possibly indicating conservatism among the investors.
The Relative Strength Index (RSI) signals a consistent bearish momentum with readings ranging from 25 to 41 across the past few sessions. Concurrently, the Moving Average Convergence Divergence (MACD) depicted fewer red bars, hinting at a slow retraction in selling pressure. Therefore, investors need to closely monitor the mentioned support and resistance levels for a potential shift in momentum.
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.
Recommended Articles
