Created
: 2024.08.22
2024.08.22 11:11
The Australian Dollar (AUD) moves sideways against the US Dollar (USD) on Thursday, driven by strong business activity data that lifted market sentiment. Further support for the AUD/USD pair came from the Reserve Bank of Australia's (RBA) August Meeting Minutes, which suggested that the cash rate might stay unchanged for an extended period.
Australia's Judo Bank Composite Purchasing Managers Index (PMI) rose to 51.4 in August, up from 49.9 in July. This increase marks the fastest expansion in three months, driven by a stronger performance in the services sector, despite a more pronounced contraction in manufacturing production.
The US Dollar (USD) edges higher due to a slight recovery in the Treasury yields on Thursday. However, the Greenback faced challenges as FOMC Minutes for July's policy meeting indicated that most Fed officials agreed last month that they would likely cut their benchmark interest rate at the upcoming meeting in September as long as inflation continued to cool. Furthermore, traders await Fed Chair Jerome Powell's upcoming speech at Jackson Hole on Friday.
The Australian Dollar trades around 0.6740 on Thursday. Daily chart analysis shows the AUD/USD pair consolidates within an ascending channel, suggesting a bullish bias. Additionally, the 14-day Relative Strength Index (RSI) remains slightly below the 70 mark, supporting the ongoing bullish momentum. Further upward movement could indicate that the currency pair is overbought, potentially leading to a correction.
On the upside, the AUD/USD pair could test a seven-month high of 0.6798. A break above this level could lead the pair to explore the region around the upper boundary of the ascending channel at the 0.6860 level.
For support, the pair may find support around the lower boundary of the ascending channel at 0.6700 level, followed by the nine-day Exponential Moving Average (EMA) at 0.6683 level. A drop below the nine-day EMA could see the pair test the throwback level at 0.6575, followed by the next throwback level at 0.6470.
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the Canadian Dollar.
USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
---|---|---|---|---|---|---|---|---|
USD | 0.07% | 0.04% | 0.22% | -0.02% | 0.13% | 0.14% | 0.07% | |
EUR | -0.07% | -0.04% | 0.11% | -0.11% | 0.05% | 0.03% | -0.00% | |
GBP | -0.04% | 0.04% | 0.15% | -0.05% | 0.09% | 0.07% | 0.03% | |
JPY | -0.22% | -0.11% | -0.15% | -0.32% | -0.08% | -0.10% | -0.15% | |
CAD | 0.02% | 0.11% | 0.05% | 0.32% | 0.16% | 0.15% | 0.09% | |
AUD | -0.13% | -0.05% | -0.09% | 0.08% | -0.16% | -0.00% | -0.07% | |
NZD | -0.14% | -0.03% | -0.07% | 0.10% | -0.15% | 0.00% | -0.06% | |
CHF | -0.07% | 0.00% | -0.03% | 0.15% | -0.09% | 0.07% | 0.06% |
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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA's primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also "..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people." Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets - usually government or corporate bonds - from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
Created
: 2024.08.22
Last updated
: 2024.08.22
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