- The Australian dollar is Hawkish sentiment surrounding the RBA's policy outlook.
- The Australian dollar could face challenges due to increased risk aversion amid concerns about a potential resurgence of inflation in the US.
- The yields on US 2-year and 10-year bonds are 4.02% and 4.19%, respectively.
The Australian dollar (AUD) reversed recent losses against the US dollar (USD) on Tuesday. However, the AUD/USD pair struggled after US Treasury yields rose more than 2% on Monday. The increase was driven by signs of economic strength and concerns about a potential resurgence of inflation in the United States (US).
The Australian dollar has been supported by hawkish sentiment surrounding the Reserve Bank of Australia's (RBA) policy outlook, as well as strong Australian jobs data. Additionally, the Australian dollar has also been supported by China's recent interest rate cuts, given that China remains Australia's largest trading partner.
The U.S. dollar strengthened as recent economic data removed the possibility of a deep interest rate cut by the Federal Reserve in November. According to the CME FedWatch tool, there is an 89.1% chance of a 25 basis point rate cut in November, with no expectations for a larger 50 basis point rate cut.
Traders are awaiting the release of Purchasing Managers' Index (PMI) reports for both the US and Australia on Thursday. These reports provide insight into the health of each economy and can influence future monetary policy decisions.
Daily Digest Market Movers: Australian dollar falls as risk aversion increases
- The yields on 2-year and 10-year U.S. Treasury bonds are 4.02% and 4.19%, respectively, at the time of writing.
- Minneapolis Fed President Neel Kashkari on Monday emphasized that the Fed is closely monitoring the U.S. labor market for signs of rapid instability. Kashkari told investors to expect the pace of rate cuts to slow in coming quarters, suggesting that any monetary easing is likely to be gradual rather than aggressive.
- San Francisco Fed President Mary Daly said she expects the Fed to lower interest rates gradually over the next few quarters, but that the central bank remains committed to a data-driven approach.
- Speaking at the CBA 2024 Global Markets Conference in Sydney on Monday, RBA Deputy Governor Andrew Hauser expressed some surprise at the strength of job growth. Mr Hauser pointed to the significantly high labor force participation rate and stressed that while the RBA relies on data, it is not data-obsessed.
- As expected, the People's Bank of China (PBOC) lowered the one-year loan prime rate (LPR) from 3.35% to 3.10% and the five-year LPR from 3.85% to 3.60%. It is expected that lower borrowing costs will stimulate domestic economic activity in China, potentially increasing demand for exports to Australia.
- National Australia Bank revised its outlook for the Reserve Bank of Australia (RBA) in a note last week. “We have brought forward our expectations for the timing of rate cuts and now expect the first rate cut to be in February 2025 rather than May,” the bank said. They continue to predict gradual cuts, with interest rates expected to fall to 3.10% by early 2026.
- U.S. retail sales in September rose 0.4% from the previous month, exceeding the 0.1% increase recorded in August and the market estimate of 0.3% growth. Additionally, the number of new U.S. unemployment claims fell by 19,000 for the week ending October 11, the largest decline in three months. The total number of applications was 241,000, significantly lower than the expected 260,000.
- Australia's seasonally adjusted employment increase in September increased by 64,100 people, bringing total employment to 14.52 million, a record high. This follows an increase of 42,600 people in the previous month and significantly exceeded the market forecast of an increase of 25,000 people. Meanwhile, the unemployment rate in September was stable at 4.1%, in line with August's revised figure and lower than the expected 4.2%.
Technical analysis: Australian dollar falls to around 0.6650, 8-week low
The AUD/USD pair was trading around 0.6660 on Tuesday. Technical analysis on the daily chart shows that the pair is below the 9-day exponential moving average (EMA), indicating a bearish outlook in the short term. Furthermore, the 14-day Relative Strength Index (RSI) remains below 50, reinforcing the bearish mood.
On the downside, the pair could test the eight-week low set on September 11 at 0.6622, and then the psychological level at 0.6600.
Resistance is likely at the 9-day EMA at 0.6700, followed by the 50-day EMA at 0.6734. A break above this level could open the door to psychological resistance at 0.6800.
AUD/USD: daily chart
Australian dollar price today
The table below shows today's percentage change in the Australian Dollar (AUD) against major listed currencies. The Australian dollar was the strongest against the US dollar.
| USD | EUR | GBP | JPY | CAD | australian dollar | new zealand dollar | swiss franc | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.04% | -0.12% | 0.00% | -0.02% | -0.43% | -0.44% | -0.10% | |
| EUR | 0.04% | -0.07% | 0.03% | 0.01% | -0.41% | -0.38% | -0.06% | |
| GBP | 0.12% | 0.07% | 0.12% | 0.10% | -0.33% | -0.33% | -0.00% | |
| JPY | 0.00% | -0.03% | -0.12% | -0.02% | -0.43% | -0.46% | -0.11% | |
| CAD | 0.02% | -0.01% | -0.10% | 0.02% | -0.41% | -0.43% | -0.10% | |
| australian dollar | 0.43% | 0.41% | 0.33% | 0.43% | 0.41% | -0.01% | 0.31% | |
| new zealand dollar | 0.44% | 0.38% | 0.33% | 0.46% | 0.43% | 0.01% | 0.33% | |
| swiss franc | 0.10% | 0.06% | 0.00% | 0.11% | 0.10% | -0.31% | -0.33% |
The heat map shows 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 Australian Dollars from the left column and move along the horizontal line to US Dollars, the percentage change displayed in the box represents AUD (Basic)/USD (Quote).
Australian Dollar Frequently Asked Questions
One of the most important factors for the Australian dollar (AUD) is the interest rate level set by the Reserve Bank of Australia (RBA). Australia is a resource-rich country, so another important factor is the price of its largest export, iron ore, which is Australia's largest trading partner, as well as its inflation, growth rate and trade. The health of China's economy is also a factor. balance. Market sentiment is also a factor, with investors taking on riskier assets (risk-on) or seeking safer assets (risk-off), with risk-on being positive for the Australian dollar.
The Reserve Bank of Australia (RBA) influences the Australian dollar (AUD) by setting the level of interest rates at which Australian banks can lend to each other. This affects the level of interest rates throughout the economy. The RBA's main goal is to maintain a stable inflation rate of 2-3% by adjusting interest rates up and down. The Australian dollar is supported by relatively high interest rates compared to other major central banks, and conversely by relatively low interest rates. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former being AUD-negative and the latter AUD-positive.
China is Australia's largest trading partner, so the health of the Chinese economy has a significant impact on the value of the Australian dollar (AUD). When China's economy does well, China buys more raw materials, goods and services from Australia, increasing demand for the Australian dollar and boosting its value. The opposite is true if China's economy is not growing as fast as expected. Therefore, positive or negative surprises in China's growth data often directly impact the Australian dollar and its pairs.
Iron ore is Australia's largest export, accounting for $118 billion annually, according to 2021 data, with China the main destination. Therefore, iron ore prices could be a driver for the Australian dollar. Generally, when the price of iron ore increases, the Australian dollar also appreciates because aggregate demand for the currency increases. The opposite is true if the price of iron ore falls. Higher iron ore prices tend to increase the likelihood of Australia's trade balance being positive, which is also positive for the Australian dollar.
The balance of trade is the difference between what a country earns from exports and what it pays for imports, and is another factor that can affect the value of the Australian dollar. If Australia produces a highly sought-after export, the country's currency will be deducted from just the surplus demand generated from foreign buyers seeking to buy that export, compared to the amount spent on purchasing the import. value increases. Therefore, a positive net trade balance will cause the Australian dollar to appreciate, while a negative trade balance will have the opposite effect.
