Australian Dollar gains as RBA signals inflation concerns
- Australian Dollar gains ground amid cautious sentiment surrounding the Reserve Bank of Australia policy outlook.
- RBA’s Hunter expects tight labor markets and inflation to remain above target.
- Traders await the US January CPI, with headline and core inflation seen easing to 2.5%.
The Australian Dollar (AUD) advances against the US Dollar (USD) on Friday after posting losses of more than 0.5% in the previous session. Still, AUD/USD may find support from cautious sentiment surrounding the Reserve Bank of Australia (RBA) policy outlook.
RBA Assistant Governor Sarah Hunter said she expects the labor market to remain tight and inflation to stay above target for some time, adding that she is closely monitoring capacity constraints across the economy and labor market.
RBA Governor Michele Bullock reiterated that the Board stands ready to raise rates further if inflation proves persistent, emphasizing that any inflation “with a three in front of it” would be unacceptable. She stressed that policy decisions will remain data-dependent, with forecasts continually reassessed.
Australia’s Consumer Inflation Expectations rose to 5.0% in February from 4.6%, ending seven consecutive months below 5%. The broad-based increase supports the RBA Board’s decision to lift the cash rate target to 3.85%.
Traders now turn to the January Consumer Price Index (CPI) report from the United States (US). Headline inflation is expected to ease to 2.5% from 2.7%, while core inflation is seen moderating to 2.5% from 2.6%. A softer reading could open the door for the Federal Reserve to resume rate cuts after pausing at its first meeting of the year.
Markets are pricing in two Federal Reserve rate cuts this year, with the first likely in the second half following stronger-than-expected January jobs data. However, uncertainty lingers over potential changes to the Federal Reserve’s balance sheet ahead of Kevin Warsh’s expected Chairmanship in May. Warsh has previously opposed asset purchases but recently indicated openness to coordinating with the Treasury to help ease yields.
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 | 0.03% | 0.03% | 0.35% | 0.01% | -0.04% | -0.08% | 0.02% | |
| EUR | -0.03% | -0.00% | 0.33% | -0.02% | -0.07% | -0.11% | -0.02% | |
| GBP | -0.03% | 0.00% | 0.33% | -0.02% | -0.07% | -0.11% | -0.01% | |
| JPY | -0.35% | -0.33% | -0.33% | -0.33% | -0.40% | -0.44% | -0.34% | |
| CAD | -0.01% | 0.02% | 0.02% | 0.33% | -0.07% | -0.11% | 0.00% | |
| AUD | 0.04% | 0.07% | 0.07% | 0.40% | 0.07% | -0.04% | 0.06% | |
| NZD | 0.08% | 0.11% | 0.11% | 0.44% | 0.11% | 0.04% | 0.10% | |
| CHF | -0.02% | 0.02% | 0.01% | 0.34% | -0.01% | -0.06% | -0.10% |
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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