Australian Dollar remains calm amid risk-off sentiment ahead of Fed decision

Australian Dollar remains calm amid risk-off sentiment ahead of Fed decision
Australian Dollar remains calm amid risk-off sentiment ahead of Fed decision
  • The Australian Dollar extended losses after weaker domestic data this week.
  • The Australian Industry Index indicated prevailing contractionary conditions in private business activity.
  • The US Dollar continues to gain after a stronger Employment Cost Index was released on Tuesday.

The Australian Dollar (AUD) remains under pressure following the release of the AiG Industry Index on Wednesday, indicating a prevailing contraction in private business activity in Australia during March. However, with the Reserve Bank of Australia’s (RBA) meeting scheduled for next week, it is widely anticipated to maintain interest rates at the current level of 4.35%.

The Australian Dollar lost ground after lower-than-expected Aussie Retail Sales data released on Tuesday, potentially affecting the RBA’s hawkish stance on interest rates. However, higher-than-expected domestic inflation data released last week has raised expectations that the central bank may delay interest rate cuts.

The US Dollar Index (DXY), which gauges the performance of the US Dollar (USD) against six major currencies, continues its rally ahead of the US Federal Reserve (Fed) policy meeting scheduled for Wednesday. US bond yields surged following higher-than-expected Employment Cost Index data, further bolstering the USD. Additionally, hawkish remarks from Fed officials, signaling no immediate need for rate cuts, undermined the AUD/USD pair.

Traders are expected to observe the release of the ADP Employment Change and ISM Manufacturing PMI from the United States (US) on Wednesday, ahead of the Fed’s Monetary Policy Statement. These releases will likely provide further insights into the state of the United States (US) economy.

Daily Digest Market Movers: Australian Dollar extends losses after weaker Aussie data

  • The AiG Australian Industry Index decreased by 3.6 points to hit -8.9 points in April, marking continued contractionary trends over the past two years. March’s figure stood at -5.3.
  • The ASX 200 began Wednesday trading lower, with all 11 sectors experiencing a decline. This drop followed robust US employment data that rattled Wall Street, raising concerns about sustained inflation and the potential for the US Federal Reserve (Fed) to prolong higher interest rates.
  • According to the Financial Review, ANZ predicts the Reserve Bank of Australia will start reducing interest rates in November, spurred by last week’s inflation data surpassing expectations. Likewise, Commonwealth Bank, Australia’s largest mortgage lender, has revised its forecast for the RBA’s first interest rate cut timing, now projecting a single cut in November.
  • During the first quarter, the US Employment Cost Index surged by 1.2%, marking the highest increase in a year and surpassing expectations of 1.0% as well as the previous figure of 0.9%. This latest data highlights enduring wage pressures, which could amplify the effects of persistent inflation within the US economy.
  • In March, the seasonally adjusted Australian Retail Sales experienced a decrease, failing to meet expectations. This marked the first decline since last December, with turnover decreasing across all industries.
  • According to the CME FedWatch Tool, the likelihood of the Federal Reserve maintaining interest rates at their current level during the June meeting has risen to 91.6%, climbing from 81.2% a week ago. This narrative of prolonged higher rates from the Fed is bolstering the US Dollar and posing a hurdle for the AUD/USD pair.
  • The Economic Times reported on Monday that Fed Chair Jerome Powell mentioned it would likely take “longer than expected” to gain confidence that inflation is progressing towards the central bank’s 2% target. Powell added that the central bank can maintain rates at a high level “as long as needed.” Fed Governor Michelle Bowman expressed her view of “upside risks” to inflation. Meanwhile, Minneapolis Fed President Neel Kashkari raised the possibility of no rate cuts occurring this year.

Technical Analysis: Australian Dollar moves below 0.6500

The Australian Dollar trades around 0.6470 on Wednesday. The pair has breached the lower boundary of a symmetrical triangle and the significant level of 0.6480. Additionally, the 14-day Relative Strength Index (RSI) is below the 50-level, indicating a bearish sentiment.

The AUD/USD pair could potentially move toward the vicinity of the psychological level of 0.6400, followed by April’s low of 0.6362. A further decline below this level might prompt a test of the lower boundary of the descending channel, around the major level of 0.6350.

If there’s an upward movement, the AUD/USD pair might challenge the symmetrical triangle’s lower boundary near the psychological level of 0.6500. A breakthrough above this level could bolster the pair to revisit the upper boundary, situated around the level of 0.6585.

AUD/USD: Daily Chart

Australian Dollar price today

The table below shows the percentage change of the Australian Dollar (AUD) against listed major currencies today. The Australian Dollar was the weakest against the New Zealand Dollar.

USD 0.09% 0.06% 0.00% 0.06% 0.10% -0.14% 0.07%
EUR -0.06% -0.02% -0.08% 0.01% 0.05% -0.21% -0.01%
GBP -0.06% 0.01% -0.06% 0.04% 0.05% -0.19% 0.02%
CAD 0.01% 0.08% 0.06% 0.10% 0.10% -0.13% 0.07%
AUD -0.06% -0.02% -0.04% -0.09% 0.01% -0.23% -0.02%
JPY -0.10% -0.03% -0.04% -0.11% -0.01% -0.23% -0.03%
NZD 0.14% 0.21% 0.19% 0.13% 0.23% 0.24% 0.20%
CHF -0.08% 0.01% -0.01% -0.07% 0.02% 0.03% -0.20%

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).


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 “ 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.



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