- The Australian Dollar (AUD) extends its gains in Thursday’s Asian session.
- RBA’s hawkish hold and reduced bets on Fed rate cut back the pair’s upleg.
- The US Initial Jobless Claims, Housing data, Philly Fed Manufacturing Index, and Fed’s Neel Kashkari speech are due on Thursday.
The Australian Dollar (AUD) trades in positive territory for the third consecutive day on Thursday. The hawkish stance from the Reserve Bank of Australia (RBA) at its June meeting on Tuesday continues to support the pair. Additionally, weaker-than-expected Retail Sales have fueled speculation for US Federal Reserve (Fed) rate cuts later this year, weighing on the Greenback and creating a tailwind for AUD/USD.
However, the RBA statement indicated that the economic outlook remains uncertain, and the process of taming inflation to target is unlikely to be smooth. Traders will take more cues from the preliminary Australia’s Judo Bank Purchasing Managers Index (PMI) for May on Friday. Any sign of weakness in the Australian economy might prompt the Australian central bank to lower its borrowing costs, which might drag the AUD lower.
On the US docket, investors will watch the release of the US weekly Initial Jobless Claims, Building Permits, Housing Starts, the Philly Fed Manufacturing Index, and the Fed’s Neel Kashkari speech on Thursday. On Friday, the preliminary US S&P Global PMI reports for June will be in the spotlight.
Daily Digest Market Movers: Australian Dollar extends gains, supported by RBA’s hawkish hold
- The Australian central bank delivered a hawkish hold, as widely expected. The RBA kept the cash rate unchanged at 4.35% and reiterated that “the Board is not ruling anything in or out.”
- The RBA Governor Michele Bullock said during the press conference that the board discussed the option of raising rates while the case for a rate cut was not considered, adding that it “will do what is necessary” to return inflation to target.
- The first reading of the Australian Judo Bank Manufacturing PMI is projected to improve to 50.6 in June from 49.7 in May.
- Odds of a September Fed funds rate cut rose to 67% after the disappointing retail sales data. Fed funds futures also raise expectations for 50 basis points (bps) of total rate cuts this year.
- The US Initial Jobless Claims for the week ending June 15 are estimated to decline by 235,000 from the previous week’s 242,000.
Technical Analysis: AUD/USD remains constructive in descending trend channel
The Australian Dollar trades on a stronger note on Thursday. The AUD/USD pair remains capped within a descending trend channel since May 14. The pair keeps the positive vibe beyond the key 100-day Exponential Moving Average (EMA) on the daily chart. The bullish momentum in the 14-day Relative Strength Index (RSI) continues to reinforce the pair’s upside.
A decisive break above the upper boundary of the descending trend channel of 0.6675 will attract some buyers to the 0.6700 psychological level. Extended gains will see a rally to 0.6760, a high of January 4.
On the flip side, a crucial support level for AUD/USD will emerge at 0.6590, the 100-day EMA. Further south, the next contention is seen at 0.6575, the lower limit of the channel. A breach of this level will expose 0.6510, a low of March 22, followed by 0.6465, a low of May 1.
Australian Dollar price this week
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies this week. Australian Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.38% | -0.27% | -0.17% | -0.83% | 0.29% | 0.01% | -0.68% | |
| EUR | 0.39% | 0.11% | 0.22% | -0.45% | 0.70% | 0.39% | -0.30% | |
| GBP | 0.27% | -0.09% | 0.10% | -0.56% | 0.59% | 0.26% | -0.40% | |
| CAD | 0.17% | -0.22% | -0.11% | -0.66% | 0.49% | 0.17% | -0.51% | |
| AUD | 0.88% | 0.48% | 0.59% | 0.69% | 1.17% | 0.86% | 0.18% | |
| JPY | -0.31% | -0.70% | -0.60% | -0.46% | -1.15% | -0.30% | -1.01% | |
| NZD | -0.01% | -0.39% | -0.28% | -0.18% | -0.84% | 0.28% | -0.66% | |
| CHF | 0.67% | 0.31% | 0.39% | 0.50% | -0.16% | 1.00% | 0.67% |
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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- Source: https://www.fxstreet.com/news/australian-dollar-extends-upside-as-rba-tone-shifts-more-hawkish-202406200324
