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- The Australian dollar rose as higher consumer inflation dampened potential interest rate cuts by the Reserve Bank of Australia.
- Australia’s monthly CPI jumped 4.0% year-on-year versus expected growth of 3.8% in May.
- The US dollar remains calm as investors turn cautious ahead of key US economic data later this week.
The Australian Dollar (AUD) is recovering from losses after the release of the monthly CPI for May which came in higher than expected. Persistently high inflation poses an obstacle to a potential interest rate cut by the Reserve Bank of Australia (RBA), which could support Australian dollar AUD/USD pair is supported.
Reserve Bank of Australia (RBA) Assistant Governor Christopher Kent said on Wednesday that recent data underscores the need to remain vigilant about potential inflation increases. Kent noted that current policies are contributing to slower demand growth and lower inflation. He also stated that no options are being ruled out regarding future interest rate adjustments, according to Bloomberg.
The US dollar remains calm after making gains on Tuesday. Investors are cautious ahead of key US economic data later this week. The revised US GDP for the first quarter (Q1) is scheduled to be released on Thursday, followed by the in-person reading. Consumption expenses (PCE) Price Index on Friday.
Daily Summary Market Drivers: The Australian dollar rose on higher consumer inflation
- Australia’s monthly consumer price index jumped 4.0% in the year to May, compared with the 3.6% increase recorded in April, according to data published by the Australian Bureau of Statistics (ABS) on Wednesday. This increase exceeded market expectations, which predicted a growth of 3.8% during the aforementioned period.
- According to Bloomberg, Chinese Premier Li Qiang expressed his confidence in China’s ability to achieve the annual growth target of about 5%. On Tuesday, the People’s Bank of China injected 300 billion yuan through seven-day reverse repo operations, keeping the reverse repo rate at 1.8%. Changes in the Chinese economy may significantly impact the Australian market, given the close trade relations between China and Australia.
- Australian Westpac consumer confidence rose 1.7% month-on-month in June, rebounding from a 0.3% decline in the previous month. This represents the first increase in four months and the highest level since February.
- On Friday, the US composite PMI for June beat expectations, rising to 54.6 from May’s reading of 54.5. This figure represents the highest level since April 2022. The manufacturing PMI rose to a reading of 51.7 from 51.3, beating expectations of 51.0. Likewise, the services PMI rose to 55.1 from 54.8 in May, beating the consensus estimate of 53.7.
- According to a Reuters report, Minneapolis Fed President Neel Kashkari indicated on Thursday that it could take a year or two to bring inflation back to 2%.
- Reserve Bank of Australia Governor Michelle Bullock said during her recent press conference that the board discussed potential rate hikes, ruling out considerations of a near-term rate cut, according to ABC News. Markets have significantly lowered their expectations for a rate cut by the Reserve Bank of Australia this year, with relief not expected until April next year.
Technical Analysis: The Australian dollar stabilizes around the 0.6650 level
The Australian dollar is trading around 0.6660 on Wednesday. analysis The daily chart shows a neutral bias for the AUD/USD pair as it is consolidating inside a rectangular formation. The Relative Strength Index (RSI) for the 14-day frame is just above the 50 level. Further movement may indicate a clear directional trend.
The AUD/USD pair may find support at the 50-day Exponential Moving Average (EMA) level at 0.6616. A drop below this level may push the pair to test the lower limit of the rectangle pattern near 0.6585.
On the upside, the AUD/USD pair may face resistance near the upper border of the rectangle formation around 0.6695, aligned with the 0.6700 psychological level. Furthermore, potential resistance levels include the highest level at 0.6714 recorded since January.
AUD/USD: daily chart
Australian dollar price today
The table below shows the percentage change in the Australian Dollar (AUD) against the major currencies listed today. The Australian dollar was the strongest against the Japanese yen.
| American dollar | euro | GBP | Bastard – scoundrel | Australian dollar | JPY | New Zealand dollar | Swiss franc | |
| American dollar | -0.04% | -0.02% | -0.02% | -0.31% | 0.11% | 0.01% | -0.01% | |
| euro | 0.03% | 0.01% | 0.02% | -0.27% | 0.17% | 0.05% | 0.02% | |
| GBP | 0.03% | -0.01% | -0.02% | -0.29% | 0.12% | 0.03% | 0.01% | |
| Bastard – scoundrel | 0.04% | 0.02% | 0.03% | -0.27% | 0.14% | 0.06% | 0.03% | |
| Australian dollar | 0.33% | 0.22% | 0.28% | 0.27% | 0.45% | 0.33% | 0.34% | |
| JPY | -0.12% | -0.15% | -0.16% | -0.14% | -0.42% | -0.09% | -0.12% | |
| New Zealand dollar | -0.05% | -0.09% | -0.03% | -0.04% | -0.33% | 0.14% | 0.02% | |
| Swiss Franc | 0.02% | -0.03% | -0.01% | -0.03% | -0.31% | 0.12% | 0.03% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen from the top row. For example, if you select 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 the EUR (base)/JPY (quote).
Frequently asked questions about the Australian dollar
One of the most important factors affecting the Australian dollar is the level of interest rates set by the Reserve Bank of Australia. Because Australia is a resource-rich country, another major factor is the price of its largest export, iron ore. The health of the Chinese economy, its largest trading partner, is an influential factor, as well as Australia’s inflation, its growth rate, and the trade balance. Market sentiment – whether investors are moving towards riskier assets (risk on) or looking for safe havens (risk off) – is also an influential factor, as risk is positive for 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 affects the level of interest rates in the economy as a whole. The RBA’s main objective 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 Australian dollar, and relatively low ones do the opposite. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former being AUD negative and the latter AUD positive.
China is Australia’s largest trading partner, so the health of the Chinese economy has a major impact on the value of the Australian Dollar (AUD). When the Chinese economy is performing well, it buys more raw materials, goods and services from Australia, which raises demand for the Australian dollar and raises its value. The opposite is the case when the Chinese economy does not grow as quickly as expected. Therefore, positive or negative surprises in Chinese growth data often have a direct impact on the Australian dollar and its crosses.
Iron ore is Australia’s largest export, representing $118 billion annually according to 2021 data, and China is its main destination. Therefore, the price of iron ore could be a driver of the Australian dollar. In general, if the price of iron ore rises, the Australian dollar also rises, as overall demand for the currency increases. The opposite is the case if the price of iron ore falls. Higher iron ore prices also tend to increase the likelihood of a positive trade balance for Australia, which is also positive for the Australian dollar.
The balance of trade, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can affect the value of the Australian dollar. If Australia produces highly sought-after exports, its currency will gain value from the excess demand generated by foreign buyers seeking to buy its exports in exchange for what it spends to buy imports. Therefore, a positive net trade balance strengthens the Australian dollar, with the opposite effect if the trade balance is negative.
