Australian Dollar extends gains toward a three-month high ahead of RBA decision
- Australian Dollar gains ground due to the decline in the US Dollar.
- Australia’s TD Securities Inflation reduced to 5.1% in September from 5.7% prior.
- RBA is expected to increase interest rates by 25 basis points in its policy decision on Tuesday.
The Australian Dollar (AUD) holds strong on Monday, aiming to mark a three-month high. The AUD/USD pair continues to gain ground for the fourth successive day, gearing up for the Reserve Bank of Australia's (RBA) interest rate decision set to be unveiled on Tuesday.
Australia's central bank is set to announce its policy decision on Tuesday. Expectations are leaning towards a 25 basis points increase, a move in line with Australian inflation teetering at the edges, providing support to the Australian Dollar (AUD). Moreover, the RBA Shadow Board suggests a cash rate increase in November. It assigns a 62% probability of raising the cash rate to a level above 4.10%.
The AUD/USD pair experiences an additional uplift due to an improved risk appetite. This sentiment is fueled by the possibility that the US Federal Reserve (Fed) has completed its monetary policy tightening, as indicated by cooling economic data from the United States (US).
US Dollar Index (DXY) experienced a significant drop of over 1.0% in the previous session. This decline was influenced by downbeat US Treasury yields, a reaction to the weaker-than-expected nonfarm payrolls released on Friday. The disappointing employment data contributed to subdued sentiment for the US Dollar (USD).
Daily Digest Market Movers: Australian Dollar extends gains on weaker US Dollar, focus on RBA policy decision
- Australia’s TD Securities Inflation (YoY) reduced to 5.1% in September from 5.7% prior.
- Australia’s Retail Sales improved to 0.2% in the third quarter from the previous reading of -0.6%.
- Aussie Trade Balance (Month-on-Month) decreased to 6,786M in September, falling short of expectations set at 9,400M and down from the previous figure of 10,161M.
- In the twelve months leading up to September 2023, Australia’s monthly Consumer Price Index (CPI) recorded a 5.6% increase. However, the quarterly inflation rate dipped to 5.4% year-on-year in Q3.
- US Bureau of Labor Statistics recently unveiled the Non-Farm Payrolls (NFP) data for October, disclosing a figure of 150K. This missed the expected 180K and marked a substantial drop from September's 297K.
- US Average Hourly Earnings (Month-on-Month) saw a decline to 0.2%, deviating from the anticipated 0.3%. On a year-over-year basis, it came in at 4.1%, surpassing the 4.0% expectations.
- US ISM Services Purchasing Managers' Index (PMI) declined from the previous 53.6 to 51.8. Additionally, on Thursday, the US Department of Labor released the count of initial claims for unemployment benefits for the week ending October 27, showing an increase from 212,000 to 217,000.
Technical Analysis: Australian Dollar maintains its position above 0.6500 major level ahead of the RBA decision
The Australian Dollar hovers around 0.6510 near the resistance area at the 38.2% Fibonacci retracement level aligned with the September’s high at 0.6521, followed by the 0.6550 major level. On the downside, the seven-day Exponential Moving Average (EMA) at 0.6436 could act as the immediate support following the annual low at 0.6270.
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF |
| USD | -0.05% | -0.04% | -0.09% | -0.01% | 0.02% | -0.03% | -0.27% |
| EUR | 0.04% | 0.00% | -0.05% | 0.02% | 0.06% | 0.01% | -0.23% |
| GBP | 0.04% | -0.01% | -0.05% | 0.03% | 0.04% | 0.01% | -0.23% |
| CAD | 0.09% | 0.04% | 0.05% | 0.08% | 0.10% | 0.06% | -0.19% |
| AUD | 0.00% | -0.06% | -0.05% | -0.09% | 0.02% | -0.03% | -0.27% |
| JPY | -0.02% | -0.07% | -0.28% | -0.09% | -0.03% | -0.05% | -0.29% |
| NZD | 0.03% | -0.02% | -0.01% | -0.06% | 0.02% | 0.03% | -0.24% |
| CHF | 0.26% | 0.22% | 0.22% | 0.17% | 0.26% | 0.28% | 0.23% |
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
What key factors drive the Australian Dollar?
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.
How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?
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.
How does the health of the Chinese Economy impact the Australian Dollar?
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.
How does the price of Iron Ore impact the Australian Dollar?
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.
How does the Trade Balance impact the Australian Dollar?
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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