Australian Dollar edges lower as US Dollar holds ground ahead of Fed policy
- Australian Dollar loses some ground as traders adopt caution ahead of Fed decision.
- RBA’s Sarah Hunter stressed adopting a forward-looking stance due to monetary policy’s delayed effects.
- The likelihood of multiple Fed rate cuts this year strengthens after upbeat US Retail Sales data.
The Australian Dollar (AUD) inches lower against the US Dollar (USD) on Wednesday after two days of gains. However, the downside of the AUD/USD pair could be limited as the US Dollar (USD) could struggle amid the rising likelihood of multiple Federal Reserve (Fed) interest rate cuts following upbeat US Retail Sales data.
US Retail Sales increased by 0.6% month-over-month in August, following the 0.6% increase (revised from 0.5%) recorded in July, and came in better than the market expectation of 0.2%. Retail Sales Control Group and Retail Sales ex Autos both rose 0.7%, against the expected 0.4% increase. The sales report showed resilient consumer spending despite sticky inflation and a softening labor market.
The United States (US) and China, Australia’s close trading partner, reached a commercial agreement on Monday to place TikTok under US ownership. Traders await further development on final approval anticipated during a Friday call between US President Donald Trump and Chinese President Xi Jinping.
Australian Dollar declines as US Dollar edges higher ahead of Fed decision
- The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is inching higher after a sharp decline and trading around 96.70 at the time of writing.
- The CME FedWatch tool suggests that markets are fully priced in that the Fed will cut the interest rates by 25 basis points (bps) on Wednesday, the first reduction since December, with some still hoping for a greater 50 bps cut. The Fed’s Summary of Economic Projections (SEP), the ‘dot plot,’ will be eyed, where each member of the Federal Open Market Committee (FOMC) expects the federal funds rate in the near future.
- Traders expect multiple Fed rate cuts after US Weekly Initial Jobless Claims climbed to their highest since October 2021, following last week’s weak Nonfarm Payrolls report, overshadowing a hotter-than-expected consumer inflation reading.
- Morgan Stanley and Deutsche Bank now expect the US central bank to deliver three rate cuts this year, after recent data pointed to easing inflation pressures. In separate notes on Friday, the brokerages projected 25-basis-point reductions at each of the Fed’s remaining meetings in September, October, and December, according to Reuters.
- The US Senate confirmed Stephen Miran by a 48-47 vote to fill the Federal Reserve Board seat vacated by Adriana Kugler last month. Miran will be the first executive-branch official to serve on the central bank’s board since 1935.
- The National Bureau of Statistics (NBS) showed on Monday that China’s Retail Sales rose 3.4% year-over-year (YoY) in August vs. 3.8% expected and 3.7% in July. Chinese Industrial Production increased 5.2% YoY in the same period, compared to the 5.8% forecast and 5.7% seen previously.
- The NBS said during its press conference on Monday that economic operation was generally steady in August, but domestic demand will expand and promote a rebound in prices. Some firms are having difficulties in operations as the external environment is very severe, NBS added.
- Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter said on Tuesday that the central bank is “close to getting inflation to target.” Hunter noted that risks to the outlook are balanced and emphasized the need for a forward-looking approach given the delayed impact of monetary policy. She added that the RBA is closely monitoring the underlying strength of consumer spending and aims to keep the economy near full employment.
- The Aussie Dollar finds support on the fading likelihood of further Reserve Bank of Australia (RBA) rate cuts. Swaps now price in an 86% likelihood of unchanged policy in September, bolstered by Australia’s strong July trade surplus, solid Q2 GDP, and hotter July inflation. Consumer Inflation Expectations also climbed in September, signaling stronger domestic demand and raising concerns about renewed inflationary pressures.
Australian Dollar pulls back from 11-month highs near 0.6700
AUD/USD is trading around 0.6680 on Wednesday. The technical analysis of the daily chart shows the pair moves upwards within an ascending channel pattern, strengthening the bullish bias. Additionally, the short-term price momentum is stronger as the pair remains above the nine-day Exponential Moving Average (EMA).
On the upside, the AUD/USD pair may surpass the 11-month high of 0.6689, recorded on September 17, followed by the psychological level of 0.6700 and the ascending channel’s upper boundary around 0.6710.
The AUD/USD pair may find its initial support at the nine-day EMA of 0.6634, followed by the ascending channel’s lower boundary around 0.6570. A break below the channel would weaken the bullish bias and lead the AUD/USD pair to test the 50-day EMA at 0.6541.
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 | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.12% | 0.06% | 0.07% | 0.07% | 0.02% | 0.06% | 0.15% | |
| EUR | -0.12% | -0.07% | -0.07% | -0.02% | 0.03% | 0.07% | 0.04% | |
| GBP | -0.06% | 0.07% | 0.02% | 0.04% | -0.04% | 0.00% | 0.04% | |
| JPY | -0.07% | 0.07% | -0.02% | -0.00% | 0.06% | 0.00% | -0.05% | |
| CAD | -0.07% | 0.02% | -0.04% | 0.00% | 0.03% | 0.04% | 0.07% | |
| AUD | -0.02% | -0.03% | 0.04% | -0.06% | -0.03% | 0.05% | 0.00% | |
| NZD | -0.06% | -0.07% | -0.01% | 0.00% | -0.04% | -0.05% | -0.00% | |
| CHF | -0.15% | -0.04% | -0.04% | 0.05% | -0.07% | -0.00% | 0.00% |
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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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