The Australian Dollar holds ground after China’s PMI was released on Friday.
The AUD could appreciate due to the hawkish sentiment surrounding the RBA hiking rates.
The US Dollar rebounds despite the lower US Treasury yields ahead of Core PCE.
The Australian Dollar (AUD) moves sideways after lower-than-expected NBS Purchasing Managers Index (PMI) data was released from China on Friday. Given the close trade relationship between Australia and China, any changes in the Chinese economy can significantly impact the Australian market. However, the AUD/USD pair had gained ground earlier in the day as the US Dollar (USD) struggled due to a slowdown in the US economy.
The AUD also found support as the monthly inflation rate accelerated to 3.6%, raising the possibility that the Reserve Bank of Australia (RBA) might need to hike interest rates again. Investors anticipate that the RBA will maintain high rates for a longer period, with a rate cut not expected until May next year.
The US Dollar Index (DXY), which measures the US Dollar against six major currencies, could receive pressure from a drop in US Treasury yields. This could be attributed to the US Gross Domestic Product (GDP) Annualized growth rate being revised lower to 1.3% from 1.6% for the first quarter. Traders are likely looking ahead to the Federal Reserve’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, which will be released on Friday.
Daily Digest Market Movers: Australian Dollar consolidates after lower China PMI
China’s NBS Manufacturing Purchasing Managers Index (PMI) fell to 49.5 in May from 50.4 in April, missing the market consensus of an increase to 50.5. Meanwhile, the Non-Manufacturing PMI declined to 51.1 from the previous reading of 51.2, falling short of the estimated 51.5.
Australia’s Private Capital Expenditure increased by 1.0% in Q1, exceeding expectations for a 0.5% rise and surpassing the previous quarter’s 0.9% increase.
As per a Bloomberg report, RBA Assistant Governor Sarah Hunter said at a conference in Sydney on Thursday that “inflationary pressures” are the key issue. “We’re very mindful of that.” Hunter also stated that the RBA Board is concerned about inflation remaining above the target range of 1%-3%, suggesting persistent inflationary pressure. Wages growth appears to be near its peak.
Bloomberg reported on Wednesday that Atlanta Fed President Raphael Bostic stated that the path to 2% inflation is not assured and that the breadth of price gains is still significant.
Australia’s Monthly Consumer Price Index rose 3.6% year-over-year in April, surpassing the expected reading of 3.4% and the previous reading of 3.5%.
On Tuesday, Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, suggested that a rate hike might still be possible. Kashkari stated, “I don’t think anybody has taken rate increases off the table,” and expressed uncertainty about the disinflationary process, predicting only two rate cuts, per MSN.
US Housing Price Index (MoM) for March underperformed, with March’s number coming in at 0.1% against 1.2% for February, where 0.5% was expected.
Technical Analysis: Australian Dollar remains above the key level of 0.6600
The Australian Dollar trades around 0.6630 on Friday. An analysis of the daily chart suggests a bullish bias for the AUD/USD pair as it consolidates within the rising wedge. The 14-day Relative Strength Index (RSI) is positioned slightly above the 50 level, confirming a bullish bias.
The AUD/USD pair could target the psychological level of 0.6700, followed by the four-month high of 0.6714 and the upper limit of the rising wedge around 0.6740.
On the downside, the immediate support appears at the psychological level of 0.6600 around the lower boundary of the rising wedge. The next support appears at the 50-day Exponential Moving Average (EMA) at 0.6588. A further decline could exert downward pressure on the AUD/USD pair, potentially driving it toward the throwback support region at 0.6470.
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 strongest against the Euro.
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF
USD
0.12%
0.06%
-0.13%
-0.08%
-0.16%
-0.21%
0.10%
EUR
-0.11%
-0.06%
-0.25%
-0.18%
-0.26%
-0.30%
-0.01%
GBP
-0.06%
0.04%
-0.19%
-0.13%
-0.21%
-0.25%
0.04%
CAD
0.11%
0.21%
0.17%
0.04%
-0.04%
-0.09%
0.21%
AUD
0.09%
0.19%
0.12%
-0.04%
-0.08%
-0.12%
0.16%
JPY
0.16%
0.25%
0.18%
0.03%
0.04%
-0.07%
0.26%
NZD
0.17%
0.30%
0.25%
0.07%
0.12%
0.02%
0.29%
CHF
-0.11%
0.00%
-0.05%
-0.22%
-0.18%
-0.26%
-0.30%
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).
RBA FAQs
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.
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