- The Australian dollar fell after the RBNZ delivered an unexpected 25 basis points interest rate cut on Wednesday.
- The Australian dollar could face challenges as safe-haven inflows amid rising geopolitical tensions in the Middle East.
- The US dollar weakened following weak producer price data on Tuesday.
The Australian dollar (AUD) fell against the US dollar (USD) after the Reserve Bank of New Zealand (RBNZ) unexpectedly decided to cut interest rates on Wednesday. The RBNZ decided to cut the official central bank rate (OCR) by 25 basis points from 5.50% to 5.25%. Australia and New Zealand have strong economic ties, including trade and investment. Economic developments in one country can affect the other, which can affect their currencies.
The AUD was supported by the latest data showing Australian wage growth remained high in the second quarter and the Reserve Bank of Australia (RBA) taking a more hawkish stance on its policy outlook, which held the cash rate steady at its meeting last week in a bid to push inflation back towards its 2-3% target.
Reserve Bank of Australia (RBA) Governor Michelle Bullock also ruled out any interest rate cuts over the next six months, stressing that the central bank remains cautious on inflation risks and stands ready to raise rates again if necessary. Traders are now awaiting consumer inflation expectations and employment data from Australia on Thursday.
The AUD/USD pair found support as the US Dollar weakened following weaker than expected US Producer Price Index (PPI) data released on Tuesday. Investors will likely be keeping a close eye on Wednesday’s US CPI inflation report, which could give some hints about the path of interest rate cuts by the Federal Reserve (Fed).
Daily Digest Market Trends: Australian dollar may rise on hawkish RBA stance
- Atlanta Federal Reserve Bank President Raphael Bostic said on Tuesday that recent economic data has increased his confidence that the Fed can hit its 2% inflation target, but he suggested more evidence is needed before supporting a rate cut, according to Reuters.
- The U.S. core producer price index (PPI) rose 2.4% year-over-year in July, up from the previous reading of 3.0%. The index was below the expected 2.7% increase. Core PPI was unchanged.
- The U.S. Producer Price Index (PPI) rose 2.2% year-on-year in July, up from a 2.7% increase in June but below market expectations of 2.3%. Meanwhile, the PPI rose 0.1% month-on-month, following a 0.2% increase in June.
- Australia’s Westpac Consumer Confidence Index rose 2.8% in August after falling 1.1% in July, while the Wage Price Index remained stable at 0.8% in the second quarter, slightly below market expectations of a 0.9% increase.
- Reserve Bank of Australia (RBA) Deputy Governor Andrew Hauser said on Monday that persistent inflation was due to weak supply and a tight labor market. He also noted that the economic forecast was surrounded by great uncertainty.
- Gains in the risk-sensitive Australian dollar could be limited by safe-haven inflows amid rising geopolitical tensions in the Middle East. Axios reporter Barak Ravid reports that Defense Minister Yoav Gallant told U.S. Defense Secretary Lloyd Austin on Sunday that Iranian military activity indicates preparations for a major attack on Israel.
- On Sunday, Federal Reserve Governor Michelle Bowman said she continues to see rising risks to inflation and continued strength in the labor market, suggesting the Fed may not be ready to cut interest rates at its next meeting in September, according to Bloomberg.
- Last week, Westpac updated its forecast for the Reserve Bank of Australia (RBA), now predicting the first rate cut will occur in February 2025, rather than November 2024. It also raised its forecast for the final interest rate to 3.35% from 3.10%. The RBA is seen as becoming more cautious, needing stronger evidence before considering a rate cut.
Technical reasons why: Australian Dollar trades around 0.6650
The Australian Dollar is trading around 0.6640 on Wednesday. Daily chart analysis shows that the AUD/USD pair is rising within an ascending channel, indicating a strengthening bullish trend. Moreover, the 14-day Relative Strength Index (RSI) is above the 50 level, confirming the bullish momentum.
On the upside, the AUD/USD pair is likely to test the upper limit of the ascending channel at the 0.6675 level. A break above this level could see the pair rally towards the six-month high of 0.6798, recorded on July 11th.
In terms of support, the AUD/USD pair is likely to test the 9-day exponential moving average (EMA) at 0.6587, followed by the lower limit of the ascending channel and the throwback level at 0.6575. A drop below the latter will strengthen the bearish outlook and could push the pair down towards the throwback level at 0.6470.
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 | 0.02% | 0.04% | 0.09% | 0.10% | 0.02% | 1.15% | -0.03% | |
| EUR | -0.02% | 0.00% | 0.06% | 0.06% | 0.05% | 1.10% | -0.05% | |
| GBP | -0.04% | -0.01% | 0.08% | 0.07% | 0.04% | 1.12% | -0.03% | |
| JPY | -0.09% | -0.06% | -0.08% | 0.01% | -0.04% | 1.03% | -0.07% | |
| CAD | -0.10% | -0.06% | -0.07% | -0.01% | -0.05% | 1.04% | -0.09% | |
| Australian Dollar | -0.02% | -0.05% | -0.04% | 0.04% | 0.05% | 1.05% | -0.08% | |
| NZD | -1.15% | -1.10% | -1.12% | -1.03% | -1.04% | -1.05% | -1.11% | |
| Swiss Franc | 0.03% | 0.05% | 0.03% | 0.07% | 0.09% | 0.08% | 1.11% |
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).
Frequently asked questions about the Australian dollar
One of the most important factors for the Australian dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). As Australia is a resource-rich country, another important factor is the price of its largest export, iron ore. The health of the Chinese economy, its largest trading partner, and Australia’s inflation, growth rate, and trade balance are also factors. Market sentiment, i.e. whether investors are holding riskier assets (risk-on) or seeking safe havens (risk-off), is also a factor, and risk-on is positive for the AUD.
The Reserve Bank of Australia (RBA) influences the Australian dollar (AUD) by setting the interest rate levels at which Australian banks can lend to each other, which in turn influences interest rate levels 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. Relatively high interest rates compared to other major central banks support the AUD, and vice versa. The RBA can also influence credit terms using quantitative easing and tightening; the former is negative for the AUD and the latter is positive for the AUD.
China is Australia’s largest trading partner, so the health of the Chinese economy heavily influences the value of the Australian Dollar (AUD). When the Chinese economy is doing well, it buys more raw materials, goods and services from Australia, which increases the demand for the AUD and makes it more valuable. The opposite is true if the Chinese economy is not growing as expected. Therefore, any surprises, positive or negative, in Chinese growth data often have a direct impact on the Australian Dollar and its pair.
Iron ore is Australia’s largest export, worth $118 billion per year according to 2021 data, with China being the main destination. Therefore, the price of iron ore can be a driving force for the Australian dollar. Generally, when the price of iron ore rises, the AUD also rises as the total demand for the currency increases. The opposite is true if the price of iron ore falls. If the price of iron ore rises, Australia’s trade balance is also more likely to be in surplus, which is also beneficial for the AUD.
The trade balance, the difference between the income earned from exports and the amount paid for imports, is another factor that affects the value of the Australian dollar. If Australia produces exports that are in high demand, the value of the Australian currency will only rise from the excess demand that arises from foreign buyers wanting to buy the exports and the amount they spend on buying the imports. Thus, if the trade balance is positive, the value of the Australian dollar will rise and if the trade balance is negative, it has the opposite effect.
