Australian Dollar treads water below three-week highs on positive market sentiment

Australian Dollar could gain ground on the positive sentiment.
Australia’s Dollar tests three-month highs toward the 0.6600 level.
RBA Governor Bullock’s remarks support the Aussie pair.
PBoC strengthens financial support for private enterprises in listing and financing, mergers and acquisitions, and restructuring.
US Dollar seems to halt the losses as US bond yields improve.

The Australian Dollar (AUD) could continue the winning streak for the third successive session on Monday. The AUD/USD pair hovers below the three-month high at 0.6590, and received upward support from the negative tone surrounding the US Dollar (USD). This negative sentiment has been influenced by the mixed S&P Global PMI data, contributing to the Aussie pair’s strength.

Australia’s Dollar experienced a boost in response to positive market sentiment, driven by news of continued stimulus in the Chinese property market. This has improved investors’ mood, as reflected in the positive performance of equity markets. Furthermore, the People’s Bank of China (PBoC) has issued a notice to strengthen financial support for private firms. This comprehensive support encompasses assistance for private enterprises in listing and financing, mergers and acquisitions, as well as restructuring.

The PBoC has committed to increasing bond issuance by privately owned firms and is actively encouraging lenders not to cut or suspend loans for private companies facing temporary difficulties but exhibiting competitive technologies.

Furthermore, the recent hawkish comments from Reserve Bank of Australia (RBA) Governor Michele Bullock are providing support for the Aussie pair. Bullock emphasized that the inflation challenge is increasingly driven by domestic demand, underscoring that monetary policy tightening is the appropriate response to demand-driven inflation.

US Dollar Index (DXY) attempts to snap the recent losses as US Treasury yields show improvement. This comes amid speculations that the US Federal Reserve (Fed) might ease monetary policy next year. However, Fed officials’ comments last week hinted at the need for further tightening. They also emphasized that decisions would depend on incoming data to take appropriate measures to address inflation concerns.

It is a busy week ahead for Australia and the United States on the economic front. RBA Bullock’s speech, retail sales, and inflation figures will likely be closely watched in Australia, providing insights into the potential monetary policy considerations. In the United States (US), Gross Domestic Product Annualized (Q3), Core PCE – Price Index, and the ISM Manufacturing PMI will be key indicators.

Daily Digest Market Movers: Australian Dollar seems to move on an upward trajectory on hawkish RBA

RBA’s meeting minutes revealed that the board acknowledged a “credible case” against an immediate rate hike but considered the case for tightening stronger due to increased inflation risks. The decision on further tightening would hinge on data and risk assessment.
National Australia Bank (NAB) anticipates another RBA rate hike, expecting it to occur at the February 2024 meeting.
The Federal Open Market Committee (FOMC) meeting minutes revealed that members would further entertain the idea of tightening monetary policy if incoming information suggests insufficient progress toward the Committee’s inflation objective.
FOMC members unanimously agree that policy should stay restrictive for some time until there is clear and sustainable evidence of inflation moving down toward the Committee’s target.
US S&P Global Composite PMI for November shows it remained unchanged at 50.7. The Services PMI increased to 50.8 in November from 50.6 in October, surpassing the market consensus of 50.4. However, the Manufacturing PMI eased to 49.4 from 50.0, falling short of the 49.8 estimated.

Technical Analysis: Australian Dollar hovers below the three-month highs aligned to 0.6600 psychological level

The Australian Dollar hovers around the 0.6580 level on Monday, just below the three-month high reached at 0.6590 on Friday, which aligns with the psychological resistance of the 0.6600 level. On the downside, the seven-day Exponential Moving Average (EMA) at 0.6550 could serve as crucial support, followed by the 23.6% Fibonacci retracement at 0.6513. If the pair falls below this level, it may test the major support at the 0.6500 level.

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 Japanese Yen.

 
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF

USD
 
0.00%
0.03%
0.21%
0.15%
-0.37%
0.24%
0.01%

EUR
0.00%
 
0.03%
0.21%
0.15%
-0.38%
0.24%
0.00%

GBP
-0.03%
-0.03%
 
0.18%
0.11%
-0.41%
0.21%
-0.03%

CAD
-0.20%
-0.20%
-0.17%
 
-0.06%
-0.59%
0.03%
-0.20%

AUD
-0.11%
-0.10%
-0.08%
0.10%
 
-0.48%
0.14%
-0.10%

JPY
0.37%
0.39%
0.33%
0.58%
0.52%
 
0.63%
0.40%

NZD
-0.22%
-0.23%
-0.19%
-0.01%
-0.08%
-0.60%
 
-0.21%

CHF
0.01%
0.01%
0.05%
0.22%
0.17%
-0.36%
0.26%
 

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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