- Australian Dollar holds ground amid improved risk appetite on Tuesday.
- Australia’s Westpac Consumer Confidence fell by 2.4% in April, against the previous decline of 1.8%.
- US Dollar receives downward pressure as volatility prevails ahead of US CPI.
The Australian Dollar (AUD) continues to hold onto its gains registered in the previous session despite the subdued Westpac Consumer Confidence released on Tuesday. The decline in the US Dollar (USD) provided support for the AUD/USD pair, which could be attributed to the improved risk appetite.
The Australian Dollar strengthens amid a higher domestic equity market. The ASX 200 Index positions for gains as investor attention remains fixed on the Reserve Bank of Australia’s (RBA) interest rate decisions. Investors are growing more doubtful about the need for the RBA to cut interest rates in 2024, especially after positive US data bolstered expectations that the Federal Reserve (Fed) may prolong its higher interest rate stance.
The US Dollar Index (DXY) encounters hurdles as the Federal Reserve carefully evaluates incoming data, prompting fluctuations in the market. Traders eagerly anticipate the release of the US Consumer Price Index data scheduled for Wednesday. They will also focus on Australian Consumer Inflation Expectations and Chinese consumer prices slated for Thursday.
Daily Digest Market Movers: Australian Dollar holds position amid weaker Consumer Confidence
- Australia’s Westpac Consumer Confidence declined by 2.4% in April, against the previous fall of 1.8%.
- Australian data showed on Friday that Trade Surplus (MoM) narrowed to 7,280 million in March, falling short of the expected 10,400 million and February’s reading of 10,058 million.
- Federal Reserve (Fed) Bank of Minneapolis President Neel Kashkari emphasized the importance of the central bank’s commitment to combatting inflation. Kashkari stressed that despite the current inflation rate hovering around 3%, the Fed must strive to bring it back down to the target level of 2%.
- According to the CME FedWatch Tool, the likelihood of a 25-basis point rate cut by the Fed in June has reduced to 51.1%.
- US headline CPI is expected to experience an acceleration in March, whereas the core measure is expected to show a cooling down.
- US Nonfarm Payrolls (NFP) reported a significant increase of 303,000 jobs in March, surpassing expectations of 200,000 and the previous reading of 270,000.
- US Average Hourly Earnings rose by 0.3% month-over-month in March, meeting expectations. The previous reading was 0.2%. There was an increase of 4.1% on an annual basis, aligning with the market consensus but slightly lower than 4.3% prior.
Technical Analysis: Australian Dollar hovers above the psychological support of 0.6600
The Australian Dollar trades around 0.6610 on Tuesday. The AUD/USD pair may experience an upward movement, as it has recently tested the range around 0.6620 and 0.6630 multiple times throughout March. Moreover, the pair surpassed the nine-day Exponential Moving Average (EMA) in the previous week and has found support on it since then. The key resistance region is observed around the major level of 0.6650, followed by March’s high of 0.6667. On the downside, immediate support is identified around the psychological level of 0.6600, followed by the nine-day EMA at 0.6570 and the major support level of 0.6550.
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 strongest against the Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.24% | -0.24% | -0.16% | -0.52% | 0.12% | -0.60% | 0.21% | |
| EUR | 0.24% | 0.01% | 0.08% | -0.29% | 0.36% | -0.35% | 0.43% | |
| GBP | 0.23% | 0.00% | 0.06% | -0.28% | 0.36% | -0.36% | 0.44% | |
| CAD | 0.16% | -0.08% | -0.07% | -0.36% | 0.29% | -0.43% | 0.36% | |
| AUD | 0.53% | 0.29% | 0.29% | 0.37% | 0.65% | -0.07% | 0.72% | |
| JPY | -0.12% | -0.36% | -0.34% | -0.27% | -0.67% | -0.70% | 0.08% | |
| NZD | 0.60% | 0.35% | 0.36% | 0.43% | 0.07% | 0.71% | 0.79% | |
| CHF | -0.20% | -0.44% | -0.43% | -0.36% | -0.72% | -0.08% | -0.80% |
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 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.
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.
