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Australian Dollar surges on positive expectations that RBA policy decision will keep cash rate at 4.350% during today’s May meeting of RBA.
Due to high risk appetite driven by expectations for rate cuts from the Federal Reserve, the US Dollar remains subdued.
On Tuesday, the Australian Dollar (AUD) continued its winning streak for five straight sessions thanks to bullish sentiment surrounding Reserve Bank of Australia (RBA). This positive outlook strengthens AUD/USD pair further by reinforcing strength of Aussie Dollar and giving support.
Australian central bank officials are widely expected to keep its cash rate steady at 4.35% when meeting later today; however, markets have speculated it might adopt a more hawkish stance, given last week’s inflation figures which outshone expectations, according to The Australian Financial Review.
The US Dollar Index (DXY), which tracks its performance against six major currencies, remains under pressure following Friday’s release of weak US labor data, reinvigorating hopes of interest rate cuts by the Federal Reserve (Fed).
Daily Digest of Market Movers: Australian Dollar Continues Gains due to Increased Risk Appetite
According to Bloomberg’s reports, Richmond Federal Reserve President Thomas Barkin stated on Monday that higher interest rates will serve to both temper economic growth and curb inflationary pressures to achieve its 2% inflation target. He further commented on how solid employment markets allow the Fed an opportunity to monitor that inflation trends down before considering reductions in borrowing costs; though he cautioned continued inflationary trends could keep prices elevated over time.
TD Securities Inflation, as published by The University of Melbourne, dropped from 3.8% in March to 3.7% in April; monthly rate remains steady at 0.1%.
China’s Caixin Services Purchasing Managers’ Index (PMI) for April dropped slightly to 52.5 from 52.7, as predicted, yet still marks its 16th month of expanding services activity – and has the potential to boost Australia’s export markets given one of their main export partners is China.
On Friday, Nonfarm Payrolls showed that US economy added 175,000 jobs during April compared to an estimated 243,000 increase, suggesting an impressive reduction from March’s 315,000 job addition.
The Judo Bank Australia Composite Purchasing Managers Index (PMI) declined in April, signalling a slightly slower increase in Australian private sector output. Business activity expansion primarily occured within service sector while manufacturing output continued its gradual decrease.
Forecasts by analysts at Commonwealth Bank and Westpac indicate that the Reserve Bank of Australia interest rate could hit its maximum, at 4.355% in November 2023 before gradually declining over time to reach 3.10 % by December 2025.
Australia’s central bank is expected to maintain the key policy rate at 4.35% at their Tuesday meeting and likely until September according to economist predictions from Reuters poll. They anticipate only one interest rate decrease this year.
Technical Analysis: Australian Dollar could test its upper triangle boundary near 0.6650.
On Tuesday, the Australian Dollar traded near 0.6630. It has formed an ascendant triangle pattern over recent days with its 14-day Relative Strength Index (RSI) above 50 levels suggesting an increased bullish bias.
The AUD/USD pair may retest its upper boundary near major support level of 0.6650, potentially prompting it to revisit March’s high of 0.6667 before reaching psychological level 0.6700.
On the downside, the AUD/USD pair may find immediate support at psychological level of 0.6600 before rebounding towards its nine-day Exponential Moving Average (EMA), currently located at 0.6569. Should it break below this mark and test throwback support around 0.6480 then further pressure may ensue with lower boundary of the symmetrical triangle around 0.6465 serving as further backup support level.
Daily Chart of Australian Dollar and United Dollar Exchange rates in 2019
This table depicts the percentage change of Australian Dollar (AUD) against major world currencies today, with Japan leading in terms of strength against it. AUD performed strongly against EUR and CHF today as well.
USD, EUR, GBP, CADAUDAUD JPYNZD CHF are the top currencies, in this order; EUR-0.02%-0.03% for every euro spent; GBP=-0.03-0.000005% per 0.07%-0.13%-0.00%, for 0.06% in USD-GBP= 0.000007%-0.000007 with PS=0.13=0.66829 per point and CHF-0.0008%=0.000008% per cent =-0.0007% Whilst EURO (-0.14% for every one percent), and GBP=0.00% =0.00% =-0.07% W.B, WIP=-0.04%
W =-0.00% W=-0.053%=0.00% =-0.0005% W=0.00%-0.05:0.13=0.00% [0.00%W=0.00% Whilst W ==>WB W=> (-0.057% Whilst W$=0.201% W =0.11W [0.07% W]. JPY =0.14; Wage per unit= 1 unit per unit= 11.3 =0.14 Wage per unit=0.86 WP=-0.14 WPC, WPY=>-0.19%Wash in 0.13=0.87 WP =0.14 WPW WP =0.14W4 and so as such=0.98 Wage per unit]. whils 0.07%/0.176%W Wage WpW, which meant:-0.0007% WPA W/0.95 WP =0.0008/8 WP:=0.52 WT WP =0.17 WP =0.92 W/1%=0.15 |0.112% W/5% per capita for this particular unit in JP = 1 USD=> USD for USD1 =0.14, 0.10PS 0.06 Wage 1/16% WpY =
Heat maps display percentage changes among major currencies over time. You can choose the base currency from the left column while picking an opposing quote currency from the top row; for instance if selecting Euro in one column and moving along its horizontal line to Japanese Yen along another horizontal line will display as EUR/JPY on this heat map.
Australian Dollar (AUD)actualite The Reserve Bank of Australia’s (RBA) interest rates play a critical role in shaping its value; another driver for Australia as a resource-rich country is Iron Ore prices; further, health of China economy plays a part as does inflation in Australia, growth rates, Trade Balance as well as market sentiment (whether investors are taking on riskier assets (risk-on) or seeking safer assets (risk-off). Risk on is often seen as positive to its AUD value.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting interest rates that Australian banks lend each other, thus setting overall economic interest rates and keeping inflation rates between 2-3% steady by adjusting interest rates up or down as needed to reach this goal; relative high rates relative to other major central banks typically support the AUD, whereas lower interest rates negatively impact it; quantitative easing can also be employed by RBA to alter credit conditions – with one effect negatively influencing it while tightening being more positive – through credit conditions managed with tightening becoming increasingly effective AUD-positive over time!
China is Australia’s top trading partner, so its economic health plays an outsized role in shaping its value as well. When China purchases more raw materials and goods and services from Australia when economic conditions improve; vice versa when economic activity falters unexpectedly or fails to expand as anticipated – negative or positive surprises in Chinese growth data often have direct bearing on Australia Dollar exchange rates and pairs.
Iron Ore is Australia’s primary export, accounting for an estimated annual value of $118 billion according to data from 2021, with China serving as its primary destination. Iron Ore prices therefore often act as an influencer on the Australian Dollar; when prices for Iron Ore rise, aggregate demand increases; conversely when Iron Ore prices decline, demand decreases, leading to less money entering circulation as aggregate demand decreases and the exchange rate fluctuates accordingly. A higher iron Ore price also tends to result in positive Trade Balance figures which also benefits the currency overall and overall.
Trade Balance, defined as the difference between what a country earns from exports compared to imports, can play an influential role in shaping the value of Australian Dollar. If Australia produces highly sought after exports that draw foreign buyers in excess of what its import costs cover will cause its currency to appreciate in value compared to how it spent for imports; consequently, positive net Trade Balance strengthens AUD while negative Trade Balance weakens it;
