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Australian Dollar looks to approach the psychological level post RBA minutes

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  • 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.

Daily Digest Market Movers: Australian Dollar continues to gain ground on hawkish RBA tone

  • 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.

Technical Analysis: Australian Dollar moves above 0.6550, supported by the 23.6% Fibonacci retracement

The Australian Dollar trades higher around the 0.6580 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.

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 strongest against the US Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.16% -0.22% -0.08% -0.30% -0.63% -0.47% -0.15%
EUR 0.16%   -0.03% 0.10% -0.17% -0.47% -0.32% 0.01%
GBP 0.20% 0.05%   0.14% -0.12% -0.42% -0.27% 0.05%
CAD 0.08% -0.08% -0.14%   -0.24% -0.57% -0.40% -0.08%
AUD 0.33% 0.20% 0.14% 0.28%   -0.29% -0.12% 0.23%
JPY 0.63% 0.47% 0.43% 0.56% 0.31%   0.12% 0.48%
NZD 0.48% 0.33% 0.27% 0.41% 0.17% -0.16%   0.33%
CHF 0.15% 0.00% -0.06% 0.08% -0.16% -0.48% -0.31%  

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).

Inflation FAQs

Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.

The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.

Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.

Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.

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