- The Australian dollar is under downward pressure due to concerns about a worsening Chinese economy.
- A hawkish view on the Reserve Bank of Australia's policy outlook could limit the Australian dollar's decline.
- The US dollar is struggling as the likelihood of aggressive policy changes increases. Federal Reserve Interest Rate cut on Wednesday.
The Australian dollar (AUD) fell against the US dollar (USD) on Tuesday as concerns grew over the health of the Chinese economy. Analysts noted that recent weak economic data points to serious challenges for the world's second-largest economy. As China is a key trading partner for Australia, fluctuations in China's economic health could have a major impact on the Australian market.
Economists at Goldman Sachs and Citi have cut their forecasts for China's GDP growth in 2024 to 4.7%, below Beijing's target of about 5.0%. Société Générale described the situation as a “downward spiral,” while Barclays called it “only getting worse” and a “vicious circle.” Morgan Stanley also warned that “things may get worse before they get better,” according to a Reuters report.
The AUD/USD pair's decline may be limited as the Australian Dollar is supported by a hawkish stance from the Reserve Bank of Australia (RBA), while the US Dollar is under pressure amid growing expectations of an aggressive 50 basis points interest rate cut by the Federal Reserve on Wednesday.
According to the CME FedWatch tool, the market is pricing in a 38.0% chance of a 25 basis point rate cut by the Federal Reserve at its September meeting, while the likelihood of a 50 basis point cut has jumped to 62.0% from 50.0% the previous day, reflecting rising expectations for more aggressive monetary easing.
Daily Digest Market Trends: Australian dollar falls as China economy slows
- The ANZ-Roy Morgan consumer confidence index rose 1.8 points to 84.1, its highest level in eight weeks. ANZ noted the gains were broad-based, but confidence remains in pessimistic territory.
- The University of Michigan Consumer Sentiment Index rose to 69.0 in September, beating market expectations of 68.0 and the highest level in four months. The increase reflects a gradually improving outlook for consumers' U.S. economy after months of declining economic expectations.
- China's economy weakened in August as industrial activity continued to slow and property prices fell, increasing pressure on Beijing to increase spending to stimulate demand, the National Bureau of Statistics reported on Saturday, according to the Business Standard.
- China's retail sales rose 2.1% year-on-year in August, slowing from 2.7% growth in the previous month and falling short of the market consensus of 2.5% growth.
- The U.S. Producer Price Index (PPI) rose 0.2% month-on-month in August, beating the expected 0.1% increase and the previous 0.0% increase, while core PPI rose 0.3% month-on-month, beating the expected 0.2% increase and July's 0.2% decline.
- Australian consumer inflation expectations eased to 4.4% in September, down slightly from a four-month high of 4.5% in August. The decline highlights the central bank's efforts to balance lowering inflation within a reasonable timeframe with preserving gains in the labour market.
- The Reserve Bank of Australia (RBA) has maintained a hawkish stance, with Governor Michelle Bullock saying it is too early to consider cutting interest rates because inflation remains high, and RBA Deputy Governor Sarah Hunter also noted that while the labour market remains tight, wage growth appears to have peaked and is expected to slow further.
Technical reasons why: AUD strengthens to 0.6750; the next barrier is the 7-month high
On Tuesday, the AUD/USD pair is trading near 0.6750. Technical analysis on the daily chart shows that the pair is above the upper limit of the descending channel, indicating a weakening bearish bias. Moreover, the 14-day Relative Strength Index (RSI) is just above the 50 level, suggesting a reversal of momentum from a bearish to a bullish trend.
On the upside, the breakout above the descending channel has triggered a bullish bias for the AUD/USD pair, which could push the pair towards the seven-month high at 0.6798 and possibly test the psychological level at 0.6800.
On the downside, the AUD/USD pair is likely to find immediate support near the 9-day exponential moving average (EMA) at the 0.6719 level, followed by the upper limit of the descending channel at the 0.6690 level. A return to the descending channel will strengthen the bearish bias and the pair may move through the area near the throwback support zone around 0.6575, followed by finding the lower limit of the descending channel at the 0.6550 level.
AUD/USD: Daily Chart
Today's price of the Australian dollar
The table below shows the percentage movement of the Australian Dollar (AUD) against the major listed currencies today: The Australian Dollar was the weakest currency against the Swiss Franc.
| USD | EUR | GBP | JPY | CAD | Australian Dollar | NZD | Swiss Franc | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.08% | 0.11% | 0.11% | 0.07% | 0.12% | 0.20% | -0.01% | |
| EUR | -0.08% | 0.03% | 0.00% | -0.05% | 0.03% | 0.11% | -0.09% | |
| GBP | -0.11% | -0.03% | -0.02% | -0.04% | -0.00% | 0.09% | -0.16% | |
| Japanese Yen | -0.11% | 0.00% | 0.02% | -0.03% | 0.02% | 0.10% | -0.15% | |
| CAD | -0.07% | 0.05% | 0.04% | 0.03% | 0.05% | 0.14% | -0.11% | |
| Australian Dollar | -0.12% | -0.03% | 0.00% | -0.02% | -0.05% | 0.08% | -0.17% | |
| NZD | -0.20% | -0.11% | -0.09% | -0.10% | -0.14% | -0.08% | -0.25% | |
| Swiss Franc | 0.00% | 0.09% | 0.16% | 0.15% | 0.11% | 0.17% | 0.25% |
The heat map displays the percentage change between major currencies. The base currency is selected from the left column and the quote currency is selected from the top row. For example, if you select the Australian Dollar from the left column and move it along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
RBA FAQ
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy in Australia. Decisions are made at 11 board meetings per year and ad-hoc emergency meetings as necessary. The RBA's primary mission is to maintain price stability (i.e. inflation between 2-3%), but also to “contribute to monetary stability, full employment and the economic prosperity and well-being of the Australian people”. Its main tool for achieving this goal is to raise or lower interest rates. Relatively higher interest rates will strengthen the Australian dollar (AUD) and vice versa. The RBA's other tools include quantitative easing and tightening.
Inflation has always been considered a negative factor for currencies as it generally reduces the value of money, but the opposite has become true in modern times due to the relaxation of cross-border capital controls. Moderately high inflation tends to cause central banks to raise interest rates, which has the effect of increasing capital inflows from investors around the world looking for a favorable place to park their funds. This increases the demand for the local currency, which in Australia's case is the Australian dollar.
Macroeconomic data measures the health of the economy and can affect the value of the currency. Investors prefer to put their capital in a safe and growing economy rather than an unstable and contracting one. Increased capital inflows increase aggregate demand and the value of the domestic currency. Common indicators such as GDP, manufacturing and services PMI, employment, and consumer sentiment surveys can affect the AUD. If the economy is doing well, the Reserve Bank of Australia may raise interest rates, supporting the AUD.
Quantitative easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian dollars (AUD) to buy assets (usually government or corporate bonds) from financial institutions, providing them with much-needed liquidity. QE typically results in a weakening of the AUD.
Quantitative tightening (QT) is the opposite of QE. It is implemented after QE when the economic recovery is underway and inflation starts to rise. In QE, the Reserve Bank of Australia (RBA) provides liquidity by purchasing government and corporate bonds from financial institutions, but in QT, the RBA stops purchasing further assets and stops reinvesting principal on maturing bonds it already holds. This will be positive (or bullish) for the Australian dollar.
