Australian Dollar gains ground as Governor Bullock stated that inflation is a challenge.
Australia’s central bank is optimistic that the progress in employment can be sustained.
Chinese authorities are expected to provide additional stimulus measures to support the real estate sector.
US Dollar weakens on improved risk appetite and lower US Treasury yields.
The Australian Dollar (AUD) extends its gains for the third successive session on Tuesday. This rally is fueled by the hawkish comments made by the Reserve Bank of Australia (RBA) Governor Michele Bullock. Furthermore, the AUD/USD pair is finding support from the hawkish tone found in the RBA’s November meeting minutes, rising commodity prices, and reflecting investor optimism about potential additional stimulus measures in China.
Australia’s labor market appears robust, as indicated by Governor Bullock. She believes that the progress in employment can be sustained. Moreover, Bullock notes that underlying demand, rather than just supply issues, is contributing to the inflation challenge, making it a significant concern for the next one or two years.
The Reserve Bank of Australia’s November meeting minutes reveal that the board acknowledged a “credible case” against an immediate rate hike but considered the case for tightening stronger due to increased inflation risks. The decision on further tightening would hinge on data and risk assessment. The minutes stressed the importance of preventing even a modest rise in inflation expectations. Staff forecasts assumed one or two more rate rises, and rising house prices suggested policy might not be overly restrictive.
According to sources cited by Bloomberg, Chinese authorities are expected to take measures to support the real estate sector by drafting a list of 50 eligible developers, both private and state-owned. This list is expected to guide financial institutions in providing support through various means such as bank loans, debt, and equity financing.
US Dollar Index (DXY) extended its decline, nearing three-month lows due to improved risk appetite and lower US Treasury yields. Despite the growth in the United States (US) economy, the Greenback finds itself in a vulnerable position in the short term.
Investors will likely focus on Existing Home Sales and the Chicago Fed National Activity Index from the US. Additionally, the Federal Reserve (Fed) is set to release the minutes from its recent meeting.
Australia’s seasonally adjusted Employment Change reported an increase of 55K in October, compared with the market anticipation of 20K and 6.7K in the previous month.
The Aussie Unemployment Rate came in at 3.7% in October as expected against the previous figure of 3.6%.
Australia’s Wage Price Index grew 1.3% as expected compared to the previous reading of 0.8%. The year-over-year data showed an increase of 4.0% more than the anticipated 3.9%.
The Reserve Bank of Australia (RBA) Assistant Governor Marion Kohler stated that inflation is expected to decrease but won’t hit the RBA’s 2-3% target until the end of 2025.
The People’s Bank of China (PBoC) kept its loan prime rate (LPR) unchanged at 3.45% as expected.
Boston Federal Reserve (Fed) President Susan Collins expressed optimism on Friday that the Fed can lower inflation without causing significant damage to the labor market by being “patient” with further interest rate moves.
The October’s US Consumer Price Index (CPI) showed lower readings than expected, with the annual rate slowing from 3.7% to 3.2%, falling below the consensus forecast of 3.3%. The monthly CPI reduced to 0.0% from 0.4%.
The US Core CPI rose by 0.2% below the expectations of 0.3%, and the annual rate decreased to 4.0% from 4.1% prior.
The Australian Dollar trades higher around the 0.6570 level on Tuesday. The AUD/USD pair may encounter resistance near the psychological level of 0.6600. On the downside, immediate support is anticipated around the psychological level at 0.6550, followed by the 23.6% Fibonacci retracement at 0.6500. If a break occurs below the level, the nine-day Exponential Moving Average (EMA) at 0.6493 could be the next support.
Australian Dollar price today
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the .
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).
What is the Reserve Bank of Australia and how does it influence the Australian Dollar?
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.
How does inflation data impact the value of the Australian Dollar?
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.
How does economic data influence the value of the Australian 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.
What is Quantitative Easing (QE) and how does it affect the Australian Dollar?
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.
What is Quantitative tightening (QT) and how does it affect the Australian Dollar?
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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