- The US dollar recovers amid the Middle East conflict.
- Last week's US NFP data tempered expectations for aggressive easing from the Fed.
- Minutes from the Reserve Bank of Australia's September policy meeting could stem the bleeding.
AUD/USD fell 0.50% to 0.6765 on Monday, weighed down by a strong dollar and concerns over geopolitical tensions in the Middle East.
Australia's economy faces an uncertain future with conflicting economic indicators. Despite healthy employment levels and strong consumer spending, inflation remains high. The Reserve Bank of Australia (RBA) is taking a cautious approach. This week's minutes will be closely watched.
Daily Digest Market Trends: Australian dollar falls, US dollar rises
- The Australian dollar weakened amid tensions in the Middle East, and rising oil prices weighed on the risk-sensitive currency.
- The DXY rose to around 102.00 on the US dollar, supported by the upcoming release of favorable US non-farm employment data and easing expectations for Fed easing.
- The probability of a 50bp rate cut in November or December has been reduced to zero, while the probability of a 25bp rate cut next month is now only 90%.
- Despite the strong economic data, the market expects a total of 125 basis points of easing over the next year.
- Fed speakers and US Consumer Price Index (CPI) data will guide the pair's trajectory this week.
AUD/USD technical outlook: decline widens, 20-day SMA disappears
The Australian dollar/US dollar pair has widened its decline, and indicators are also sluggish, with the relative strength index (RSI) and moving average convergence divergence (MACD) falling deep into negative territory. Additionally, the outlook for the currency pair has worsened due to the loss of the 20-day SMA.
Support is found at 0.6750, 0.6730, and 0.6700, while resistance is found at 0.6800, 0.6815, and 0.6850.
RBA FAQ
The Reserve Bank of Australia (RBA) sets Australia's interest rates and controls monetary policy. Decisions are made at the Board of Directors' meetings held 11 times a year and at extraordinary emergency meetings as necessary. The RBA's primary mission is to maintain price stability, or an inflation rate of 2% to 3%, but it also “contributes to monetary stability, full employment, economic prosperity and the well-being of Australians”. The main means of achieving this is by raising or lowering interest rates. If interest rates are relatively high, the Australian dollar (AUD) will appreciate, and vice versa. Other RBA tools include quantitative easing and monetary tightening.
Inflation has traditionally always been considered a negative factor for currencies, as it generally reduces the value of money, but in modern times, with the relaxation of cross-border capital controls, the opposite is actually true. Masu. Currently, as inflation rises slowly, central banks tend to raise interest rates, which in turn has the effect of further capital inflows from global investors looking for lucrative places to store their money. . This increases the demand for the local currency (in the case of Australia, the Australian dollar).
Macroeconomic data assesses the health of an economy and can influence the value of a currency. Investors prefer to invest their capital in safe and growing economies than in unstable and shrinking economies. Increased capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators such as GDP, manufacturing and services PMI, employment and consumer sentiment surveys can influence the Australian dollar. A strong economy could prompt the Reserve Bank of Australia to raise interest rates, which could also support the Australian dollar.
Quantitative easing (QE) is a tool used in extreme situations where lower interest rates alone are not sufficient to restore credit flow to the economy. QE is a process in which the Reserve Bank of Australia (RBA) prints Australian dollars (AUD) for the purpose of purchasing assets (usually government and corporate bonds) from financial institutions, providing them with the liquidity they need. QE typically results in a weaker Australian dollar.
Quantitative tightening (QT) is the opposite of QE. This is done after quantitative easing, when economic recovery is underway and inflation begins to rise. In QE, the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide liquidity, whereas in QT, the RBA stops purchasing further assets and limits the maturities of bonds it already owns. Stop reinvesting the principal that has arrived. That would be positive (or bullish) for the Australian dollar.
