The Australian dollar (AUD) found some stability against the US dollar (USD) following the release of preliminary S&P Global Purchasing Managers’ Index (PMI) results on Friday. Traders are now closely watching for Australia’s quarterly inflation data next week, as it could significantly influence the Reserve Bank of Australia’s (RBA) policy direction.
In terms of the PMI, Australia’s preliminary S&P Global Manufacturing PMI for October dropped to 49.7 from 51.4. Conversely, the service sector PMI saw an uptick, increasing to 53.1 from 52.4, contributing to an overall PMIs rise to 52.6 in October, up from 52.4 the month before.
RBA Governor Michelle Bullock made remarks in Sydney but didn’t delve into any specifics regarding monetary policy or economic issues. She did mention that starting next year, the central bank plans to explore ways to modernize its interbank payments system, which currently processes around A$300 billion ($194.94 billion) daily and is vital for the payment infrastructure, as reported by Reuters.
However, the Australian dollar might encounter hurdles as expectations grow for potential short-term interest rate cuts from the RBA. A recent jobs report caught many off guard, with unemployment hitting its highest in nearly four years as of September. This unexpected rise unsettled the markets and increased the likelihood of a 25 basis point rate cut to 74%, up from about 50% just two weeks prior.
Meanwhile, the White House announced that President Donald Trump will meet with Chinese President Xi Jinping next week amidst another round of high-level trade discussions at the ASEAN summit. Given the intertwined trade relationship between China and Australia, shifts in China’s economic state could impact the Australian dollar.
US dollar rises in response to consumer price index data
- The US dollar index (DXY), which gauges the USD against six major currencies, has been trending upward, hovering around 99.00. Traders remain wary ahead of the U.S. inflation data set to be released on Friday amid a government shutdown and the consequent data blackout.
- The dollar found a boost following Trump’s statement about intending to secure deals during his upcoming meeting with Xi in South Korea. Their discussions are likely to encompass a variety of topics, such as U.S. soybean exports, nuclear weapon regulations, and Chinese purchases of Russian oil.
- Despite the recent gains, the U.S. dollar could be under pressure as the ongoing government shutdown delays the publication of crucial economic indicators like nonfarm payrolls (NFP), leading to increased uncertainty in financial markets and concern for the Federal Reserve.
- This day marks the 24th day of the U.S. government shutdown, the second-longest federal funding halt in history, with no resolution in sight. A stopgap bill supported by Republicans failed to pass the Senate for the twelfth time on Wednesday.
- According to a Reuters survey, 115 out of 117 economists are anticipating that the Fed will reduce monetary policy by 25 basis points (bp) to a rate of 3.75-4.00% in the upcoming October 29 announcement. For the year 2020, 83 out of 117 economists foresee two rate cuts, while 32 predict one.
- Currently, markets are estimating a nearly 98% chance of a Fed rate cut in October, along with a 92% likelihood of another cut in December, based on the CME FedWatch tool.
- On Monday, the People’s Bank of China (PBOC) opted to maintain its one-year and five-year loan prime rates (LPR) at 3.00% and 3.50%, respectively.
- In a recent meeting at the White House, President Trump and Australian Prime Minister Anthony Albanese signed an $8.5 billion agreement focused on critical minerals, aiming to secure access to Australia’s valuable rare earth resources as China tightens its export controls. Both nations are also committed to investing at least US$1 billion each in mining and processing initiatives over the next six months.
The Australian dollar is hovering above 0.6500 near the 9-day EMA.
AUD/USD is trading around 0.6510 on Friday. Technical analysis reveals the pair is operating within a descending channel, hinting at a continued bearish tendency. The 14-day RSI is below 50, which further underscores a bearish outlook.
On the downside, the AUD/USD pair might linger around its four-month low of 0.6414 before possibly trending towards the lower boundary of the descending channel at approximately 0.6390. If it breaks through this support zone, it could amplify the bearish trend and test the five-month low of 0.6372.
In terms of momentum, the AUD/USD pair is situated around the 9-day exponential moving average (EMA) of 0.6508. A successful breach of this level could improve short-term price movement and facilitate a test of the 50-day EMA at 0.6541, aligning with the upper limit of the descending channel.
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 weakest against the US dollar.
| USD | EUR | GBP | JPY | CAD | australian dollar | new zealand dollar | swiss franc | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.09% | 0.05% | 0.23% | 0.14% | 0.18% | 0.08% | 0.11% | |
| EUR | -0.09% | -0.05% | 0.12% | 0.06% | 0.09% | -0.01% | 0.03% | |
| GBP | -0.05% | 0.05% | 0.18% | 0.09% | 0.14% | 0.03% | 0.07% | |
| JPY | -0.23% | -0.12% | -0.18% | -0.09% | -0.04% | -0.15% | -0.11% | |
| CAD | -0.14% | -0.06% | -0.09% | 0.09% | 0.03% | -0.06% | -0.04% | |
| australian dollar | -0.18% | -0.09% | -0.14% | 0.04% | -0.03% | -0.10% | -0.07% | |
| new zealand dollar | -0.08% | 0.01% | -0.03% | 0.15% | 0.06% | 0.10% | 0.03% | |
| swiss franc | -0.11% | -0.03% | -0.07% | 0.11% | 0.04% | 0.07% | -0.03% |
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 instance, selecting Australian Dollars from the left and moving along to US Dollars reflects the change depicted in the box for AUD against USD.
RBA FAQ
The Reserve Bank of Australia (RBA) is responsible for setting interest rates and controlling monetary policy within the country. Their decisions are made during Board of Directors’ meetings, held 11 times a year, along with emergency meetings when necessary. Their core goal is to maintain price stability, targeting an inflation rate of 2% to 3%, while also aiming for monetary stability, full employment, and the overall well-being of Australians. They primarily adjust interest rates to achieve these aims, as higher rates usually strengthen the Australian dollar.
Inflation, although long considered detrimental to currencies by diminishing money’s value, can actually have the opposite effect in today’s context. Rising inflation may lead central banks to increase interest rates, attracting global investors seeking stable returns, which in turn boosts demand for the local currency, like the AUD.
Macroeconomic data plays a pivotal role in assessing an economy’s health and influencing currency values. Investors typically favor stable, growing economies, leading to increased capital inflows that boost the demand and value of the domestic currency. Factors such as GDP, manufacturing, services PMI, and employment data are crucial indicators that can affect the Australian dollar.
Quantitative easing (QE) is employed in critical circumstances where merely lowering interest rates isn’t adequate to stimulate economic activity. During QE, the RBA prints Australian dollars (AUD) to purchase assets, usually bonds, from financial institutions, thus enhancing liquidity. This generally results in a weakened AUD.
Quantitative tightening (QT), in contrast, occurs after QE has been implemented when the economy is recovering and inflation is on the rise. In QT, the RBA ceases its asset purchases and stops reinvesting in maturing bonds, which is seen as positive for the Australian dollar.
