The Australian dollar (AUD) remained stable against the US dollar on Monday, as traders anticipated key inflation data to be released this week. They are particularly interested in Australia’s first comprehensive monthly CPI report for October, which is set to be published on Wednesday. This will play a significant role in shaping the Reserve Bank of Australia’s (RBA) monetary policy going forward.
Recent developments suggest that the Australian dollar has been bolstered by rising expectations regarding the RBA’s cautious approach. This has positively influenced the AUD/USD exchange rate. Minutes from the RBA’s November meeting indicate the central bank may maintain current interest rates for a prolonged period. As of November 20, futures contracts reflected a 6% likelihood that the rate could be reduced from 3.60% to 3.35% at the next RBA meeting.
“Continued growth beyond expected trends may heighten inflation pressures,” stated RBA Assistant Governor Sarah Hunter on Thursday. He also highlighted the volatility of monthly inflation figures, emphasizing that the RBA doesn’t make reactive decisions based on single-month reports. Furthermore, he mentioned that the bank is closely monitoring labor market conditions to understand supply capabilities and how monetary policy effectiveness may evolve.
US dollar declines as Fed rate cut expectations rise
- The US Dollar Index (DXY), which measures the USD against six major currencies, ended a five-day winning streak, trading around 100.10 as of now. The renewed expectations for a Federal Reserve interest rate cut in December are dampening market sentiment, thus weakening the dollar.
- Currently, markets are pricing a 69% probability that the Fed will reduce the benchmark overnight borrowing rate by 25 basis points at the December meeting, up from 44% just a week ago, according to the CME FedWatch tool.
- New York Fed President John Williams mentioned on Friday that rate cuts could be considered “in the near term,” comments that have increased the likelihood of a December cut. Additionally, Fed Director Stephen Millan noted that recent employment data supported the possibility of a rate cut, stating that if his decision were pivotal, he would vote for a 25 basis point reduction.
- In November, the University of Michigan’s Consumer Confidence Index climbed to 51 from an initial estimate of 50.3, which is better than expected but lower than the 53.6 recorded in October. Inflation expectations have notably improved, with the one-year outlook decreasing to 4.5% from 4.7% and the five-year estimate dropping to 3.4% from 3.6%.
- The US nonfarm payrolls (NFP) increased by 119,000 in September, contrasting with a revised decline of 4,000 in August. This result exceeded market expectations of 50,000. Meanwhile, the unemployment rate rose to 4.4% from 4.3%, and average hourly wages remained steady at 3.8% year-over-year, slightly above the anticipated 3.7%.
- Minutes from the October 28-29 FOMC meeting revealed cautious and divided opinions among Fed officials on future interest rate trajectories. While most deemed further cuts appropriate eventually, some believed a cut in December might not be warranted.
- Australia’s preliminary S&P Global Manufacturing Purchasing Managers Index (PMI) for November increased to 51.6 from 49.7. In contrast, the services PMI slightly rose to 52.7 from 52.5 in the prior month, with the composite PMI moving up to 52.6 from 52.1.
- On Tuesday, the RBA published minutes from its November monetary policy meeting, indicating a more balanced approach, stating they could maintain the cash rate for an extended period if forthcoming data exceeds expectations.
The Australian dollar consolidates around 0.6450.
The AUD/USD traded close to 0.6450 on Monday. The daily chart illustrates that the pair is moving sideways, demonstrating a period of price stability. Currently, the price sits below the 9-day exponential moving average (EMA), signaling a slowdown in short-term momentum.
For the AUD/USD, immediate support is seen at the lower bound around 0.6420, followed by the five-month low of 0.6414, recorded on August 21.
On the upside, a key hurdle is situated at the 9-day EMA, positioned at 0.6481, with another psychological level at 0.6500. A breakout above this could enhance short-term momentum, potentially pushing the price towards the upper boundary of the range around 0.6620.
Current price of the Australian dollar
Below, you will find today’s percentage changes in the Australian Dollar (AUD) against major currencies. Interestingly, the Australian dollar has been performing well against the Japanese yen.
| USD | EUR | GBP | JPY | CAD | australian dollar | new zealand dollar | swiss franc | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.06% | -0.02% | 0.14% | 0.02% | -0.13% | 0.07% | 0.08% | |
| EUR | 0.06% | 0.05% | 0.22% | 0.08% | -0.08% | 0.13% | 0.14% | |
| GBP | 0.02% | -0.05% | 0.16% | 0.03% | -0.12% | 0.07% | 0.09% | |
| JPY | -0.14% | -0.22% | -0.16% | -0.11% | -0.27% | -0.06% | -0.05% | |
| CAD | -0.02% | -0.08% | -0.03% | 0.11% | -0.15% | 0.04% | 0.06% | |
| aud dollar | 0.13% | 0.08% | 0.12% | 0.27% | 0.15% | 0.20% | 0.21% | |
| new zealand dollar | -0.07% | -0.13% | -0.07% | 0.06% | -0.04% | -0.20% | 0.02% | |
| swiss franc | -0.08% | -0.14% | -0.09% | 0.05% | -0.06% | -0.21% | -0.02% |
The table displays percentage changes between major currencies. The base currency is taken from the left column while the quote currency is from the top row. For clarity, if you select Australian Dollars from the left and move to US Dollars along the row, the percentage change shown represents AUD (Base)/USD (Quote).
Frequently Asked Questions about the Australian Dollar
One crucial factor influencing the Australian dollar (AUD) is the interest rate set by the Reserve Bank of Australia (RBA). Given Australia’s rich resource base, the price of its most significant export, iron ore, also plays a vital role. This price is affected by Australia’s inflation, growth rate, trade balance, and the overall health of the Chinese economy, its primary trading partner. Additionally, market sentiment can sway; investors oscillate between riskier assets (risk-on) and safer options (risk-off), which tends to benefit the Australian dollar.
The Reserve Bank of Australia (RBA) impacts the AUD by determining the interest rates at which banks lend to one another. This, in turn, affects rates across the economy. The RBA aims for a stable inflation rate of 2-3% by adjusting rates as needed. Comparatively high interest rates can support the Australian dollar, while lower rates can have the opposite effect. The RBA can also employ quantitative easing and tightening to influence credit availability, negatively impacting the AUD with the former and positively with the latter.
As Australia’s largest trading partner, the Chinese economy significantly affects the value of the AUD. When China performs well, the demand for raw materials and goods from Australia increases, boosting the Australian dollar’s value. Conversely, if China’s economic growth slows, the opposite occurs. Hence, any surprising changes in China’s growth data tend to have direct consequences on the AUD and its pairings.
Iron ore is Australia’s leading export, generating $118 billion annually, mainly directed to China. Thus, fluctuations in iron ore prices can greatly influence the AUD. Generally, when iron ore prices rise, the Australian dollar tends to strengthen due to increased demand. Conversely, if prices decrease, the AUD usually suffers. Higher iron ore prices also elevate the likelihood of Australia having a positive trade balance, which is favorable for the currency.
The trade balance represents the difference between a country’s export earnings and its import expenses, another key factor affecting the AUD’s value. If Australia produces in-demand exports, increased foreign purchase can elevate the currency’s worth. Hence, a positive net trade balance strengthens the AUD, while a negative balance can weaken it.
