Australian Dollar approaches the major level after upbeat Aussie inflation data

Australian Dollar moves upward toward a major level after stronger Aussie CPI data.
Australia’s CPI climbed to 1.2% in Q3, exceeding the market consensus of 1.1%.
RBA is expected to increase interest rates by 25 basis points at November’s meeting.
US Dollar received upward support from upbeat PMI figures from the United States.

The Australian Dollar (AUD) boosts on higher inflation figures, trading higher for the third successive day on Wednesday. Additionally, the AUD/USD pair received strength after the hawkish comments from Reserve Bank of Australia (RBA) Governor Michele Bullock on Tuesday.

Australia’s Bureau of Statistics (ABS) reported on Wednesday that the Consumer Price Index (CPI) registered growth in the third quarter of 2023, surpassing the increase observed in the second quarter. The higher inflation raises the possibility of a 25 bps rate hike by the Reserve Bank of Australia (RBA) at its next policy meeting on November 7.

Australia’s Chief Policymaker’s address at the Commonwealth Bank of Australia Global Markets Conference in Sydney underscored the dedication to achieving the inflation target in a sensible timeframe.

Governor Bullock hinted that the present cash rate could serve this goal adequately, Bullock recognized the potential hazards of inflation converging back to the target at a slower pace than expected. The board holds a limited tolerance for such variances and is prepared to increase rates if there’s a substantial upward adjustment to the inflation outlook.

Investors will closely monitor RBA Governor Bullock’s remarks regarding the condition of the Australian economy as she testifies before the Senate Economics Legislative Committee in Canberra on Thursday.

The US Dollar Index (DXY) consolidates post-trimming recent losses on the back of upbeat preliminary S&P Global PMI figures from the United States released on Tuesday. However, the drop in US Treasury yields could provide downward pressure on the US Dollar (USD).

US economic indicators have eased concerns about the potential negative impact of a more restrictive monetary policy and increased borrowing costs on investment and industrial activities.

Daily Digest Market Movers: Australian Dollar extends its gains on upbeat CPI data, hawkish RBA’s comments

Australian Bureau of Statistics (ABS) revealed that the nation’s Consumer Price Index (CPI) reached 1.2% in the third quarter of 2023, surpassing the 0.8% increase recorded in the second quarter. This figure exceeded the market consensus, which anticipated a growth of 1.1% in the same period.
Australian S&P Global Composite PMI for October declined to 47.3 from the previous reading of 51.5. Manufacturing PMI eased to 48.0 compared to the prior figure of 48.7, while the Services PMI fell back into contraction, dropping to 47.6 from the previous month’s reading of 51.8.
Westpac’s Chief Economist, Luci Ellis stated in a note that the core view presented that the Consumer Price Index (CPI) is expected to continue tracking lower and return to the RBA’s 2-3 percent target band in 2025, aligning with the central bank’s own expectations.
Ellis highlighted several broader risks to the economy and inflation outlook that are being closely monitored. These include the resurgence of housing prices to levels close to pre-pandemic peaks, a global rise in bond yields, and China’s slower-than-expected recovery from a prolonged period of COVID-related lockdowns.
Australia’s central bank expressed heightened concern about the inflation impact stemming from supply shocks. Governor of the Reserve Bank of Australia, Michele Bullock stated that if inflation persists above projections, the RBA will take responsive policy measures. There is an observable deceleration in demand, and per capita consumption is on the decline.
China is set to host a significant financial policy meeting early next week, occurring once every five years. The primary objectives of this gathering are to proactively address and mitigate risks and to establish medium-term priorities for the expansive $61 trillion financial industry.
US Treasury Department officially confirmed on Tuesday that the first meeting of the economic working group between the United States and China took place. This working group serves as a platform for discussing bilateral economic policy matters.
US S&P Global Composite PMI saw an increase in October, reaching 51.0 from 50.2. The Services PMI experienced growth, reaching 50.9, while the Manufacturing PMI rose to 50.0. This marks the first instance in the last six months where manufacturing has remained above the 50-point threshold, indicating a positive shift in that sector.
The 10-year Treasury yield surged to 5.02%, marking its first time at such levels since 2007. However, it promptly reversed direction, standing at 4.82% by the press time.
Market participants will likely shift their focus on monitoring the US Q3 Gross Domestic Product (GDP) on Thursday. The US Core Personal Consumption Expenditures (PCE) and Australia’s Producer Price Index (PPI) will be eyed on Friday.

Technical Analysis: Australian Dollar hovers below the major resistance at 0.6400

The Australian Dollar hovers around 0.6390 on Wednesday aligned with the major resistance at 0.6400. A breakthrough above this resistance holds the potential to reach around the 23.6% Fibonacci retracement level at 0.6429. On the downside, the immediate support emerges around the seven-day Exponential Moving Average (EMA) at 0.6353, following the 0.6300 major level lined up with the monthly low at 0.6285.

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 strongest against the US Dollar.

 
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF

USD
 
-0.09%
-0.10%
0.00%
-0.40%
-0.03%
-0.10%
-0.03%

EUR
0.08%
 
-0.02%
0.08%
-0.30%
0.05%
-0.01%
0.05%

GBP
0.12%
0.03%
 
0.11%
-0.29%
0.08%
0.00%
0.07%

CAD
0.00%
-0.10%
-0.13%
 
-0.38%
-0.03%
-0.10%
-0.04%

AUD
0.40%
0.31%
0.29%
0.40%
 
0.36%
0.30%
0.37%

JPY
0.03%
-0.06%
-0.07%
0.02%
-0.38%
 
-0.08%
0.00%

NZD
0.10%
0.01%
-0.01%
0.10%
-0.30%
0.06%
 
0.06%

CHF
0.04%
-0.05%
-0.07%
0.04%
-0.36%
0.00%
-0.07%
 

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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