Forex News

05:33:50 10-06-2024

Australian Dollar stays calm, while US Dollar advances on expected delay over Fed cuts

  • The Australian Dollar remains tepid as robust US labor data would bolster a hawkish stance from the Fed.
  • The Australian Dollar may limit its downside due to the hawkish sentiment surrounding the RBA.
  • The US Dollar (USD) extends its gains due to the appreciated US Treasury yields.

The Australian Dollar (AUD) remains soft on Monday following the decline in the previous session. The US Dollar (USD) regained its strength from the better-than-expected US employment data released on Friday, which has caused traders to delay their expectations of a Federal Reserves (Fed) rate cuts. This has put pressure on the AUD/USD pair.

The Australian Dollar may limit its downside due to the hawkish sentiment surrounding the Reserve Bank of Australia (RBA). Last week, RBA Governor Michele Bullock indicated that the central bank is prepared to increase interest rates if the Consumer Price Index (CPI) does not return to the target range of 1%-3%, according to NCA NewsWire.

The US Dollar (USD) extends its gains due to the appreciation in US Treasury yields as a strong US jobs report would bolster a hawkish stance from the Federal Reserve. The CME FedWatch Tool indicates that the likelihood of a Fed rate cut in September by at least 25 basis points has decreased to nearly 48.0%, down from 54.8% a week earlier.

Daily Digest Market Movers: Australian Dollar remains calm till further indication on Fed policy

  • Rabobank suggested in its report that the Federal Reserve may cut rates in September and December, more likely because of a deteriorating economy than because of progress on inflation. This is because they think that the US economy is entering a stagflationary phase with persistent inflation and an economic slowdown that is likely to end in a mild recession later this year.
  • According to the US Bureau of Labor Statistics (BLS) on Friday, May's US Nonfarm Payrolls (NFP) increased by 272,000, up from 165,000 in April. The wage inflation, as measured by the Average Hourly Earnings, rose 4.1% YoY in May from 4.0% (revised from 3.9%) in April, above the market consensus of 3.9%.
  • The National Bureau of Statistics of China reported on Friday that Trade Surplus widened to $82.62 billion year-over-year in May, surpassing the expected balance of $73.00 billion and the previous balance of $65.55 billion. Meanwhile, imports rose by 1.8% from the prior year to USD 219.73 billion in May, missing market estimates of 4.2% while experiencing a significant decrease from April's 8.4% rise. Any change in China's economy could impact the Australian market as both countries are close trade partners.
  • On Friday, Australia's Trade Balance widened to A$6,548 ($4,321.68) million MoM in May, exceeding the expected A$5,500 million and April's balance of A$5,024 million. Imports plunged by 7.2% MoM in May, swinging from Aprils 4.2% increase. Exports shrank 2.5% following the previous decline of 0.6%.
  • On Thursday, Initial Jobless Claims showed the number of people claiming unemployment benefits in the US increased by 8,000 to 229,000 for the week ending May 31, surpassing market expectations of 220,000. This marks the highest reading since the eight-month high of 232,000 recorded in early May.

Technical Analysis: Australian Dollar holds ground above 0.6550

The Australian Dollar trades around 0.6580 on Monday. Analysis of the daily chart suggests a weakening bullish bias for the AUD/USD pair, as it has fallen below the lower boundary of an ascending channel pattern. This is corroborated by the 14-day Relative Strength Index (RSI), which is positioned slightly below the 50 level.

The key support appears at the major level of 0.6550, followed by the significant level of 0.6500.  A break below the latter could exert pressure on the AUD/USD pair to navigate the area around the throwback support at 0.6470.

On the upside, the 21-day Exponential Moving Average (EMA) at 0.6625 appears as the key barrier, aligned with the lower boundary of the ascending channel around the level of 0.6635. A return into the ascending channel pattern could reinforce the bullish bias and lead the AUD/USD pair to target the psychological level of 0.6700, followed by Mays high of 0.6714.

AUD/USD: Daily Chart

Australian Dollar price today

The table below shows the percentage change of the Australian Dollar (AUD) against listed major currencies today. The Australian Dollar was the weakest against the New Zealand Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.06% 0.04% 0.04% -0.06% 0.09% 0.02% 0.09%
EUR -0.06%   -0.01% -0.03% -0.12% 0.03% -0.04% 0.03%
GBP -0.06% 0.02%   -0.01% -0.11% 0.05% -0.04% 0.05%
CAD -0.04% 0.02% 0.01%   -0.09% 0.06% -0.02% 0.06%
AUD 0.07% 0.14% 0.11% 0.09%   0.15% 0.06% 0.14%
JPY -0.08% -0.04% -0.04% -0.05% -0.16%   -0.07% 0.00%
NZD -0.03% 0.04% 0.02% 0.02% -0.07% 0.07%   0.07%
CHF -0.08% -0.04% -0.05% -0.06% -0.15% 0.02% -0.05%  

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 Australias 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 Australias 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.

 

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