- The Australian dollar edged lower in Asian trading on Tuesday.
- Resurgent demand for the dollar and President Trump's tariff threats are weighing on the dollar. Hawkish expectations for the RBA could limit the downside.
- Investors brace for US October JOLT job numbers and FedSpeak on Tuesday.
The Australian dollar (AUD) extended its downside to around 0.6470 in early Asian time on Tuesday. When the US dollar (USD) rises to a three-day high, the currency pair falls. Furthermore, if a global trade war erupts under the return of US President-elect Donald Trump, it could put some selling pressure on Australian stocks.
Nevertheless, Reserve Bank of Australia (RBA) Governor Michelle Bullock's hawkish comments may help limit losses for the Australian dollar. RBA Governor Bullock said last week that core inflation remained too high to consider cutting interest rates in the short term, boosting demand for the Australian dollar. Later on Tuesday, US JOLT job openings for October will be announced. Adriana Kugler and Austan Goolsby of the Federal Reserve Board are also scheduled to speak. All eyes will be on Wednesday on Australia's third quarter gross domestic product (GDP).
Australian dollar weakens after Trump's tariff threat
- Australia's current account deficit was higher than expected in the third quarter, with a deficit of A$14.1 billion (revised from -A$10.7 billion), up from a shortfall of A$16.4 billion in the second quarter. This figure exceeded the expected A$10 billion shortfall.
- Australian retail sales rose 0.6% month-on-month in October, compared with 0.1% month-on-month growth in September, the Australian Bureau of Statistics (ABS) said on Monday. This figure exceeded the expected 0.3% growth.
- The US ISM Manufacturing PMI for November was 48.4, up from 46.5 in the previous survey. This number exceeded market expectations of 47.5.
- Atlanta Fed President Rafael Bostic said on Monday that he still believes Fed officials should continue lowering rates in the coming months, according to Bloomberg. .
- New York Fed President William Williams said Monday that Fed officials will likely need to cut rates further to move policy toward a neutral stance now that risks to inflation and employment are more balanced.
- Fed Director Christopher Waller said he is leaning toward supporting a rate cut at the December meeting on expectations that inflation will continue to moderate toward the Fed's 2% target.
Technical analysis: Australian dollar bearish trend continues
The Australian dollar fell on this day. The AUD/USD pair is still in a downtrend on the daily chart, marked by price below the key 100-day exponential moving average (EMA). Additionally, the 14-day Relative Strength Index (RSI) is below the 50 midline, supporting a sell trend in the short term.
A bearish candlestick below the November 26 low of 0.6434 could attract Australian bears and drag AUD/USD to the lower end of the downtrend channel at 0.6330. If the losses widen, the stock could fall to the October 3, 2023 low of 0.6285.
On the other hand, if the pair continues to trade above the trend channel upper limit at 0.6530, the pair could set at the 100-day EMA at 0.6626. A bullish candlestick above this level could pave the way to the November 7th high of 0.6687.
US Dollar Frequently Asked Questions
The United States Dollar (USD) is the official currency of the United States and the “de facto” currency of many other countries, circulating alongside local paper currency. It is the world's most frequently traded currency, accounting for more than 88% of the world's foreign currency trading volume, with an average daily trading value of $6.6 trillion. data After World War II, the US dollar replaced the British pound as the world's reserve currency. For most of its history, the U.S. dollar was backed by gold until the 1971 Bretton Woods agreement abolished the gold standard.
The most important single factor influencing the value of the US dollar is the monetary policy formed by the Federal Reserve System (Fed). The Fed has two responsibilities: achieving price stability (controlling inflation) and promoting full employment. The main tool to achieve these two goals is to adjust interest rates. If prices rise too fast and inflation exceeds the Fed's 2% target, the Fed will raise interest rates to support the value of the U.S. dollar. If inflation falls below 2% or unemployment is too high, the Fed could cut interest rates, which would weigh on the dollar.
In extreme circumstances, the Federal Reserve could also print more dollars and implement quantitative easing (QE). QE is a process by which the Fed significantly increases the flow of credit in a stymied financial system. This is a non-standard policy tool used when credit is exhausted because banks do not lend to each other (for fear of default by the other party). It is a last resort when simply lowering your interest rate does not seem to produce the desired results. This was the Fed's weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis of 2008. This involves the Fed printing more dollars and using it to buy U.S. Treasuries, primarily from financial institutions. QE usually leads to a weaker US dollar.
Quantitative tightening (QT) is the opposite process in which the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal of maturing bonds in new purchases. Usually positive for the US dollar.
