- Aussie dollar gains ground as Governor Bullock says inflation is a challenge.
- The Reserve Bank of Australia is optimistic that employment progress can be sustained.
- Chinese authorities are expected to take further stimulus measures to support the real estate sector.
- The US dollar is weakening due to better risk appetite and lower US government bond yields.
The Australian dollar (AUD) extended its gains for the third session in a row on Tuesday. This rally is supported by hawkish comments from Reserve Bank of Australia (RBA) Governor Michele Bullock. Addition, AUD/USD the pair finds support in the hawkish tone found in the minutes of the RBA’s November meeting, coupled with rising commodity prices reflecting investor optimism about potential additional stimulus measures in China.
The Reserve Bank of Australia is increasingly optimistic about the labor market, according to Governor Bullock. He believes that progress in employment can be sustained. In addition, Bullock notes that underlying demand rather than just supply issues is contributing to the inflation challenge, making it a significant issue for the next year or two.
Minutes from the Reserve Bank of Australia’s November meeting reveal the board recognized a “credible case” against an immediate rate hike, but considered the case for stronger tightening due to heightened inflation risks. A decision on further tightening would depend on data and risk assessment. The note emphasized the importance of preventing even a slight increase in inflationary expectations. Staff forecasts called for one or two more rate hikes, and rising home prices suggested policy might not be too restrictive.
According to sources cited by Bloomberg, Chinese authorities are expected to take measures to support the property sector by drawing up 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.
OUR Dollar index (DXY) extended its decline and neared a three-month low on a combination of improvements willingness to take risks and lower US Treasury yields. Despite the growth in United States (US economy), the dollar finds itself in a vulnerable position in the short term.
Investors are likely to focus on existing home sales and the Chicago Fed’s index of national activity from the US. Additionally, the Federal Reserve (Fed) is set to release the minutes of its recent meeting.
Daily Digest Market Movers: Aussie dollar continues to assert itself on hawkish RBA tone
- Australia’s seasonally adjusted employment change showed an increase of 55,000 in October compared to market expectations of 20,000 and 6.7,000 in the previous month.
- Australia’s unemployment rate rose to an expected 3.7% in October from 3.6% previously.
- Australia’s wage price index rose 1.3% as expected, compared with a previous reading of 0.8%. Year-on-year data showed an increase of 4.0%, more than the expected 3.9%.
- Reserve Bank of Australia (RBA) Assistant Governor Marion Kohler said inflation was expected to fall but fall short of the RBA’s 2-3% target by the end of 2025.
- As expected, the People’s Bank of China (PBoC) left the key interest rate (LPR) unchanged at 3.45%.
- Boston Federal Reserve (Fed) President Susan Collins expressed optimism on Friday that the Fed can reduce inflation without causing significant damage to the labor market by being “patient” with further interest rate moves.
- US Continuing Jobless Claims for the week ended Nov. 3 hit the highest level since 2022 at 1.865 million from a previous reading of 1.833 million.
- US Initial Jobless Claims for the week ended November 10 rose to 231,000 from 220,000 as expected, marking the highest level in nearly three months.
- October’s US Consumer Price Index (CPI) came in lower than expected, slowing from 3.7% to 3.2% year-on-year, below the consensus forecast of 3.3%. Monthly CPI eased to 0.0% from 0.4%.
- US Core CPI rose 0.2% below expectations of 0.3% and the annual rate fell to 4.0% from 4.1% previously.
Technical analysis: Aussie holds above 0.6550, supported by 23.6% Fibonacci retracement
The Australian dollar is trading higher around the 0.6560 level on Tuesday. The AUD/USD pair may encounter resistance near the psychological level at 0.6600. On the downside, immediate support is expected around the psychological level of 0.6550, followed by 23.6% Fibonacci retracement to 0.6500. If there is a break below the level, the nine-day exponential moving average (EMA) at 0.6493 could be another support.
AUD/USD: Daily chart
Today’s price in Australian dollars
The table below shows today’s percentage change in the Australian Dollar (AUD) against the major listed currencies. The Australian dollar was the strongest against the US dollar.
The heat map shows the percentage changes of major currencies against each other. The base currency is selected from the left column, while the quote currency is selected 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 shown in the box will be EUR (base)/JPY (rate).
Frequently asked questions about the Australian dollar
One of the most important factors for the Australian dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). As Australia is a resource-rich country, another key factor is the price of its biggest export, iron ore. The health of the Chinese economy, its biggest trading partner, is a factor, as is inflation in Australia, its growth rate and the Trade Balance. Market sentiment – whether investors are taking on riskier assets (risk-on) or seeking safe havens (risk-off) – is also a factor, with risk-on positive for the AUD.
The Reserve Bank of Australia (RBA) influences the Australian dollar (AUD) by setting the interest rates at which Australian banks can lend to each other. This affects the level of interest rates in the economy as a whole. The main aim 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 vice versa for relatively low ones. The RBA can also use quantitative easing and tightening to influence credit conditions, the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner, so the health of the Chinese economy has a big impact on the value of the Australian dollar (AUD). When China’s economy is doing well, it buys more raw materials, goods and services from Australia, raising demand for the AUD and increasing its value. The opposite is the case when China’s economy is not growing as fast as expected. Therefore, positive or negative surprises in Chinese growth data often have a direct impact on the Australian dollar and its pairs.
Iron ore is Australia’s largest export, accounting for $118 billion a year in 2021 figures, with China as the primary destination. So the price of iron ore can be a driver for the Australian dollar. Generally, if the price of iron ore rises, so does the AUD as aggregate demand for the currency rises. The opposite case is a decrease in the price of iron ore. Higher iron ore prices also tend to lead to a greater likelihood of a positive trade balance for Australia, which is also positive for the AUD.
Another factor that can affect the value of the Australian dollar is the trade balance, which is the difference between what a country earns from exports and what it pays for imports. If Australia produces highly sought-after exports, then its currency will gain in value purely from the excess demand created by foreign buyers trying to buy its exports over what it spends on buying imports. Therefore, a positive net trade balance strengthens the AUD, with the opposite effect if the trade balance is negative.