Australian Dollar edges higher amid dovish tone surrounding Fed policy
- Australian Dollar may further appreciate as the US Dollar could struggle over dovish Fedspeak.
- The AUD found support as stronger inflation figures tempered market expectations for a near-term RBA rate cut.
- Fed Governor Christopher Waller supports an interest-rate cut in the September meeting.
The Australian Dollar (AUD) moves little against the US Dollar (USD) on Friday, following three days of gains. However, the AUD/USD may further appreciate as the US Dollar (USD) could struggle amid renewed dovish sentiment surrounding the Federal Reserve (Fed) policy outlook.
The AUD also received support from stronger-than-expected inflation data, which has lowered the likelihood of a Reserve Bank of Australia (RBA) rate cut. Australia’s Monthly Consumer Price Index rose 2.8% year-over-year in July, beating both the previous 1.9% increase and the 2.3% forecast.
The Minutes from the Reserve Bank of Australia’s August policy meeting indicated that board members expect further reductions in the cash rate will likely be required over the coming year. The Minutes also highlighted that the timing and pace of any cuts would depend on incoming economic data and the outlook for global risks.
Australian Dollar steadies as US Dollar edges higher ahead of PCE inflation data
- The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is remaining steady and trading around 97.90 at the time of writing. The Greenback received support as the United States (US) economy grew in the second quarter. US Gross Domestic Product (GDP) Annualized climbed 3.3% in Q2, a faster pace than the initially estimated 3.1% increase and 3.0% prior.
- Traders await the July Personal Consumption Expenditures (PCE) Price Index due on Friday, the last key inflation release before the Federal Reserve’s September meeting. Headline PCE is forecast to rise 2.6% year-over-year in July, while core PCE is expected to increase 2.9% over the same period.
- Fed Governor Christopher Waller said on Thursday that he would support an interest-rate cut in the September meeting and further reductions over the next three to six months to prevent the labor market from collapsing, per Reuters.
- US President Donald Trump announced on Tuesday that he was removing Fed Governor Lisa Cook from her position on the Fed's board of directors. The dismissal of Fed Governor Cook could increase the likelihood of heavy interest rate cuts, given Trump’s ongoing pressure on the central bank to reduce borrowing costs.
- President Trump threatened "subsequent additional tariffs" and export restrictions on advanced technology and semiconductors in retaliation for digital services taxes that hit American technology companies, per Bloomberg.
- Fed Chair Jerome Powell said at the Jackson Hole symposium on Friday that risks to the job market were rising, but also noted inflation remained a threat and that a decision wasn't set in stone. Powell also stated that the Fed still believes it may not need to tighten policy solely based on uncertain estimates that employment may be beyond its maximum sustainable level.
- China’s chipmakers are seeking to triple the country’s total output of artificial intelligence processors next year, the Financial Times reported on Thursday. Traders are already cautious following US President Donald Trump’s warning of imposing a 200% tariff on Chinese goods if Beijing refuses to supply magnets to the United States (US), per Reuters. It is worth noting that any change in the Chinese economy could influence AUD as China and Australia are close trading partners.
- Australia’s Private Capital Expenditure rose 0.2% in the second quarter, from the previous decline of 0.1% but fell short of the expected 0.7% increase.
Australian Dollar targets 0.6550 barrier near monthly highs
AUD/USD is trading around 0.6540 on Friday. The technical analysis of the daily chart indicates that the pair is positioned slightly above the ascending trendline, suggesting a prevailing bullish bias. Additionally, the pair is trading above the nine-day Exponential Moving Average (EMA), indicating short-term price momentum is stronger.
On the upside, the AUD/JPY pair could target the monthly high at 0.6568, reached on August 14, followed by the nine-month high of 0.6625, which was recorded on July 24.
The AUD/JPY pair may find initial support at the nine-day EMA of 0.6502 and the 50-day EMA at 0.6498, followed by the ascending trendline around 0.6490. A break below this crucial support zone would cause the emergence of the bearish bias and prompt the pair to test the two-month low of 0.6414, recorded on August 21.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.17% | 0.10% | 0.16% | 0.03% | -0.04% | -0.04% | 0.19% | |
| EUR | -0.17% | -0.06% | -0.03% | -0.13% | -0.14% | -0.19% | 0.00% | |
| GBP | -0.10% | 0.06% | -0.02% | -0.07% | -0.10% | -0.08% | 0.07% | |
| JPY | -0.16% | 0.03% | 0.02% | -0.05% | -0.20% | -0.16% | 0.12% | |
| CAD | -0.03% | 0.13% | 0.07% | 0.05% | -0.09% | -0.04% | 0.14% | |
| AUD | 0.04% | 0.14% | 0.10% | 0.20% | 0.09% | -0.04% | 0.16% | |
| NZD | 0.04% | 0.19% | 0.08% | 0.16% | 0.04% | 0.04% | 0.20% | |
| CHF | -0.19% | -0.01% | -0.07% | -0.12% | -0.14% | -0.16% | -0.20% |
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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