- Australian Dollar drops as RBA is not certain of further policy tightening.
- National Australia Bank forecasts another 25 basis points hike in February.
- PBOC Governor Yi Gang mentioned achieving the 5% growth target successfully.
The Australian Dollar (AUD) moves below a major level, extending the losses for the third successive day following the dovish rate statement by the Reserve Bank of Australia (RBA). Additionally, the AUD/USD pair faces a challenge due to the rebound in US Dollar (USD).
Australia’s central bank adopts a data-dependent approach, particularly as the Australian economy faces a slowdown. Consumer spending has remained subdued amid persistent inflation risks. Market participants seek more cues on whether forthcoming data will prompt additional rate hikes by the Reserve Bank of Australia (RBA).
RBA raised the Official Cash Rate (OCR) from 4.10% to a 12-year high of 4.35% on Tuesday, aligning with widespread expectations. This move by the RBA appears to be influenced by recent Consumer Price Index (CPI) data, which disclosed a notable 5.6% increase in the monthly Consumer Price Index (CPI).
National Australia Bank (NAB) anticipates another 25 basis points hike in February following the Q4 inflation data. Additionally, NAB believes that rate cuts are unlikely to commence until November 2024.
Yi Gang, the Governor of the People’s Bank of China (PBOC), expressed optimism in a statement on Wednesday, stating that China’s economy is on a positive trajectory, and we anticipate achieving the 5% growth target successfully. Additionally, the International Monetary Fund (IMF) has adjusted its outlook for China’s Gross Domestic Product (GDP) growth, now projecting a 5.4% growth rate in 2023, up from the initial forecast of 5.0%, and 4.6% in 2024, surpassing the previous estimate of 4.2%. This development could offer support to the Aussie Dollar (AUD), given Australia’s position as China’s largest trading partner.
US Dollar Index (DXY) continues to gain grounds for the third successive day as US Treasury yields retrace the recent losses registered in the previous session, possibly influenced by an improved risk sentiment. This change in sentiment might be linked to speculation regarding the possibility of the US Federal Reserve (Fed) concluding interest rate hikes, particularly in the wake of the downbeat Non-Farm Payrolls data released last Friday.
Daily Digest Market Movers: Australian Dollar loses ground on dovish rate statement by RBA
- RBA has resumed policy tightening, raising the Official Cash Rate (OCR) from 4.10% to 4.35% after maintaining the benchmark interest rate unchanged for four consecutive meetings.
- Australia’s TD Securities Inflation (YoY) reduced to 5.1% in September from 5.7% prior.
- Australia’s Retail Sales improved to 0.2% in the third quarter from the previous reading of -0.6%.
- China’s Trade Balance data for October revealed a decrease in the surplus balance at $56.53B against the market expectations of an improvement to $81.95B from the previous readings of $77.71B. While Exports (YoY) experienced a more significant decline of 6.4%, more than the expected decline of 3.1%.
- US Bureau of Labor Statistics recently unveiled the Non-Farm Payrolls (NFP) data for October, disclosing a figure of 150K. This missed the expected 180K and marked a substantial drop from September’s 297K.
- US Average Hourly Earnings (Month-on-Month) saw a decline to 0.2%, deviating from the anticipated 0.3%. On a year-over-year basis, it came in at 4.1%, surpassing the 4.0% expectations.
- US ISM Services Purchasing Managers’ Index (PMI) declined from the previous 53.6 to 51.8. Additionally, on Thursday, the US Department of Labor released the count of initial claims for unemployment benefits for the week ending October 27, showing an increase from 212,000 to 217,000.
Technical Analysis: Australian Dollar hovers below the 0.6450 aligned with the support at the nine-day EMA
The Australian Dollar trades lower around 0.6430 on Wednesday. The nine-day Exponential Moving Average (EMA) at 0.6422 emerges as the key support followed by the psychological level at 0.6400. On the upside, the AUD/USD pair could face a challenge around the immediate barrier region at major support at 0.6450. A firm break could support the pair to reach the 38.2% Fibonacci retracement level at 0.6508, followed by September’s high at 0.6521.
AUD/USD: Daily Chart
Australian Dollar price today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the New Zealand Dollar.
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.