Australian Dollar appreciates, while US Dollar remains steady ahead of Fed’s Beige Book

  • The Australian Dollar appreciated after the higher-than-expected consumer inflation was released on Wednesday.
  • Australia’s Monthly Consumer Price Index rose 3.6% YoY in April, surpassing the expected readings of 3.4% and 3.5% prior. 
  • The US Dollar rebounded due to higher US Treasury yields.

The Australian Dollar (AUD) pared its daily losses after the higher-than-expected Monthly Consumer Price Index was released on Wednesday. This strong data could prompt the Reserve Bank of Australia (RBA) to consider another rate hike. The minutes from the RBA’s May policy meeting suggested that the central bank had contemplated a potential interest rate increase.

The Australian Dollar struggled during earlier Asian hours due to increased risk aversion, evidenced by the stronger US Dollar (USD). This strength in the USD can be linked to rising US Treasury yields. The US Dollar Index (DXY), which measures the USD against six major currencies, was trading higher around, 104.70, with 2-year and 10-year US Treasury yields at 4.96% and 4.54%, respectively, at the time of reporting.

The US Dollar (USD) rebounded on Tuesday after Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, suggested that a rate hike might still be possible. Kashkari stated, “I don’t think anybody has totally taken rate increases off the table,” and expressed uncertainty about the disinflationary process, predicting only two rate cuts.

According to the CME FedWatch Tool, the likelihood of the Federal Reserve implementing a 25 basis-point rate cut in September decreased to 41.7%, down from 44.9% the previous day. On Wednesday, New York Fed President John Williams is scheduled to speak, and the Fed’s Beige Book will be released, providing an overview of the current US economic situation based on interviews with key business contacts, economists, market experts, and other sources from the 12 Federal Reserve Districts.

Daily Digest Market Movers: Australian Dollar appreciates after higher consumer inflation

  • International Monetary Fund (IMF) Deputy Managing Director Gita Gopinath, speaking from Beijing, announced an upgrade in China’s economic growth target to 5% from 4.6% for 2024, citing a robust first quarter. Gopinath also praised China’s initiatives to support its property market.
  • Australia’s Monthly Consumer Price Index rose 3.6% year-over-year in April, surpassing the expected reading of 3.4% and the previous reading of 3.5%.
  • US Housing Price Index (MoM) for March was underperforming, with March’s number coming in at 0.1% against 1.2% for February, where 0.5% was expected.
  • Australia’s Retail Sales (MoM) rose by 0.1% in April, swinging from the previous 0.4% decline. This growth fell short of market expectations of 0.2%.
  • On Tuesday, China’s Politburo, the country’s top leadership, announced that the government would enhance the coordination and integration of fiscal, monetary, investment, consumption, industrial, regional, and other policies with employment policies. Any economic changes in China could significantly impact the Australian market due to the close trade relationship between the two countries.
  • At the 2024 BOJ-IMES Conference on Tuesday, Cleveland Federal Reserve President Loretta Mester emphasized the need for FOMC statements to provide a detailed description of the current economic assessment, its impact on the outlook, and the associated risks. Mester anticipates that the Fed will consider improving its communications as part of the next monetary policy framework review.
  • Meanwhile, Federal Reserve (Fed) Governor Michelle Bowman stressed the importance of continuing to reduce the balance sheet size to achieve ample reserves as soon as possible, especially while the economy is strong. Bowman underlined the necessity of clearly communicating that any changes to the run-off rate do not indicate a shift in the Fed’s monetary policy stance.

Technical Analysis: Australian Dollar hovers around the key level of 0.6650

The Australian Dollar trades around 0.6650 on Wednesday. An analysis of the daily chart suggests a bullish bias for the AUD/USD pair, as it is positioned within a rising wedge. The 14-day Relative Strength Index (RSI) is slightly above the 50 level, further confirming this bullish bias.

The AUD/USD pair could potentially reach a four-month high of 0.6714, followed by the upper limit of the rising wedge around 0.6740.

On the downside, the 21-day Exponential Moving Average (EMA) at 0.6620 serves as key support, aligning with the lower boundary of the rising wedge. The next support level is at the psychological mark of 0.6600. A further decline could exert additional downward pressure on the AUD/USD pair, potentially driving it toward the throwback support region at 0.6470.

AUD/USD: Daily Chart

Australian Dollar price today

The table below shows the percentage change of the Australian Dollar (AUD) against listed major currencies today. The Australian Dollar was the strongest against the Canadian Dollar.

USD   -0.02% -0.06% 0.07% -0.10% -0.09% 0.01% -0.03%
EUR 0.01%   -0.03% 0.10% -0.07% -0.08% 0.04% -0.01%
GBP 0.05% 0.04%   0.13% -0.06% -0.04% 0.06% 0.03%
CAD -0.08% -0.09% -0.11%   -0.19% -0.16% -0.07% -0.11%
AUD 0.10% 0.08% 0.06% 0.18%   0.02% 0.11% 0.10%
JPY 0.09% 0.07% 0.02% 0.16% 0.00%   0.08% 0.06%
NZD -0.02% -0.03% -0.06% 0.07% -0.12% -0.10%   -0.02%
CHF 0.01% 0.01% -0.03% 0.11% -0.07% -0.06% 0.03%  

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).

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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