- Australian Dollar turns tepid amid a risk aversion sentiment on Thursday.
- Australia’s Retail Sales (MoM) increased by 0.3%, against the expected 0.4% and 1.1% prior.
- US Dollar corrects ahead of US GDP Annualized data due on Thursday.
The Australian Dollar (AUD) manages to pare its intraday losses but remains in negative territory on Thursday. Challenges persisted for the AUD/USD pair due to softer Consumer Inflation Expectations and Retail Sales figures from Australia. These factors heightened expectations of the Reserve Bank of Australia (RBA) considering interest rate cuts in the second half of 2024. Additionally, Wednesday’s release of the softer Australian Monthly Consumer Price Index supported this perspective.
Australia’s consumer expectations for future inflation stood at 4.3% in March, a slight decrease from the previous increase of 4.5%. February’s seasonally adjusted Retail Sales showed a month-over-month increase of 0.3%, falling short of the expected 0.4% and the prior 1.1%. Additionally, on Wednesday, Australia’s Monthly Consumer Price Index (YoY) for February saw a 3.4% rise, maintaining consistency with previous levels but slightly below the anticipated 3.5%.
The US Dollar Index (DXY) appears to pause its two-day winning streak, edging lower in anticipation of the upcoming release of US Personal Consumption Expenditures (PCE) data scheduled for Friday. Nevertheless, the recent uptick in US Treasury yields may have lent support to the US Dollar (USD) amid divergent opinions among members of the Federal Open Market Committee (FOMC) regarding monetary policy easing.
Daily Digest Market Movers: Australian Dollar loses ground on risk aversion
- Australia’s Westpac Consumer Confidence dipped 1.8% to 84.4 in March 2024 from February’s 86.0, easing from 20-month highs.
- Australia’s Westpac Leading Index (MoM) increased by 0.1% in February, against the previous decline of 0.09%.
- Australia’s government has pledged to support a minimum wage increase aligned with inflation this year, recognizing the ongoing challenges low-income families face amid rising living costs.
- At the Boao Forum for Asia (BFA), China’s top legislator, Zhao Leji, emphasized China’s stance on inclusive economic globalization. He stated that China opposes unilateralism and protectionism in all their forms and is committed to closely linking its development with other countries.
- Federal Reserve Board Governor Christopher Waller still sees ‘no rush’ to cut rates amid sticky inflation data.
- Atlanta Fed President Raphael Bostic expressed his expectation for just one rate cut this year, cautioning that reducing rates prematurely could lead to greater disruption.
- Fed Governor Lisa Cook cautioned against easing policy too soon, warning that it could exacerbate the risk of inflation becoming entrenched.
- Chicago Fed President Austan Goolsbee, leaning towards a dovish stance, expects three cuts but indicates a need for more evidence of inflation subsiding before taking action.
- US Durable Goods Orders increased by 1.4% in February, against the 1.3% expected and previous decline of 6.9%.
- US Durable Goods Orders ex Defense rose by 2.2% in February, compared to the expected 1.1% and 7.9% previous decline.
- US Housing Price Index (MoM) decreased by 0.1% in January, against the December’s increase of 0.1%.
Technical Analysis: Australian Dollar could test the major barrier of 0.6550
The Australian Dollar traded near 0.6540 on Thursday. Immediate resistance is observed around the 23.6% Fibonacci retracement level at 0.6541, coinciding with the major barrier of 0.6550 and the 21-day Exponential Moving Average (EMA) at 0.6553. On the downside, a notable support level is at the psychological mark of 0.6500, followed by March’s low at 0.6477. A breach below this level may lead the AUD/USD pair to test the major support level at 0.6450.
AUD/USD: Daily Chart
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 weakest against the Pound Sterling.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.14% | -0.24% | -0.23% | -0.24% | 0.06% | 0.00% | 0.81% | |
| EUR | 0.13% | -0.12% | -0.10% | -0.11% | 0.14% | 0.17% | 0.94% | |
| GBP | 0.24% | 0.12% | 0.03% | 0.02% | 0.30% | 0.30% | 1.06% | |
| CAD | 0.22% | 0.10% | -0.02% | -0.01% | 0.28% | 0.27% | 1.04% | |
| AUD | 0.24% | 0.12% | 0.00% | 0.01% | 0.24% | 0.24% | 1.05% | |
| JPY | -0.05% | -0.16% | -0.19% | -0.26% | -0.29% | -0.02% | 0.78% | |
| NZD | -0.05% | -0.12% | -0.24% | -0.23% | -0.24% | 0.01% | 0.81% | |
| CHF | -0.82% | -0.94% | -1.06% | -1.04% | -1.04% | -0.76% | -0.77% |
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 has 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.
