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Australian Dollar consolidates post intraday gains despite downbeat Aussie Retail Sales

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  • Australian Dollar extends its gains despite downbeat Retail Sales data from the country.
  • Australia’s Retail Sales declined by 0.2% against the expected growth of 0.1%.
  • RBA Governor Bullock mentioned the need for caution in employing high interest rates to curb inflation.
  • US Dollar extends its losses as US Treasury yields decline.

The Australian Dollar (AUD) continues its winning streak for the fourth successive session despite downbeat seasonally adjusted Retail Sales data from Australia on Tuesday. The AUD/USD pair hovers near its peak from early August near the 0.6625 level, benefiting from a downward bias that has left the Greenback appearing susceptible.

Australia’s primary gauge of consumer spending is released by the Australian Bureau of Statistics (ABS), which showed monthly readings for October declined by 0.2% against the market expectations of a 0.1% rise and 0.9% prior.

Australia’s Dollar (AUD) received a lift from positive market sentiment and the unveiling of the Chinese stimulus plan. Additionally, Reserve Bank of Australia (RBA) Governor Michele Bullock added her insights to a panel discussion titled “Inflation, Financial Stability, and Employment” on Tuesday. She highlighted that the current monetary policy is on the restrictive side, with rate hikes putting a damper on demand, particularly in the context of persistent services inflation.

Governor Bullock emphasized the need for caution in employing high interest rates to combat inflation without inadvertently raising the unemployment rate. Her expectation is for inflation to decrease to just under 3.0% in 2025, acknowledging the uncertainty surrounding the path of inflation. Subsequently, on Wednesday, traders will closely observe the Monthly Consumer Price Index (YoY) for further market insights.

US Dollar Index (DXY) marks its lowest since late August on Tuesday. The prevailing trend continues to lean towards the downside, fueled by a dip in US Treasury yields, notably with the 2 and 10-year bond yields slipping to 4.86% and 4.39%, respectively, by the press time.

United States (US) is slated to release key data on Tuesday, including the Housing Price Index and CB Consumer Confidence. Additionally, market participants will be tuning in to several speeches from Federal Reserve (Fed) officials, providing insights into the central bank’s perspective on the economic landscape.

Daily Digest Market Movers: Australian Dollar continues to move on an upward trajectory on hawkish RBA

  • RBA’s meeting minutes revealed 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.
  • National Australia Bank (NAB) anticipates another RBA rate hike, expecting it to occur at the February 2024 meeting.
  • The People’s Bank of China (PBoC) has issued a notice to strengthen financial support for private firms. This comprehensive support encompasses assistance for private enterprises in listing and financing, mergers and acquisitions, as well as restructuring.
  • China’s Industrial Profit Year-to-Date (YTD) data narrowed to a decline of 7.8%, an improvement from the previous drop of 9.0%. In the month of October, there was a positive shift, with industrial enterprises’ profits showing a 2.7% increase, contrasting with the 11.9% decrease observed earlier.
  • The Federal Open Market Committee (FOMC) meeting minutes revealed that members would further entertain the idea of tightening monetary policy if incoming information suggests insufficient progress toward the Committee’s inflation objective.
  • FOMC members unanimously agree that policy should stay restrictive for some time until there is clear and sustainable evidence of inflation moving down toward the Committee’s target.
  • US New Home Sales fell by 5.6% to 679K compared to the market consensus of 725K.

Technical Analysis: Australian Dollar moves above the psychological level of 0.6600

The Australian Dollar hovers around the 0.6620 level on Tuesday. The next key resistance is at 0.6650. A breakthrough above the level could support the AUD/USD pair to approach the psychological resistance region around 0.6700 level followed by August’s high at 0.6723. On the downside, the psychological level of 0.6600 could be the key support before with the seven-day Exponential Moving Average (EMA) at 0.6573. A decisive break below the latter could push the pair to test support near the 23.6% Fibonacci retracement at 0.6537.

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 New Zealand Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.01% 0.00% -0.03% -0.06% -0.12% 0.03% 0.01%
EUR -0.02%   -0.03% -0.05% -0.08% -0.13% 0.01% -0.01%
GBP 0.00% 0.02%   -0.02% -0.08% -0.14% 0.03% 0.01%
CAD 0.02% 0.03% 0.01%   -0.04% -0.09% 0.06% 0.03%
AUD 0.08% 0.08% 0.07% 0.05%   -0.06% 0.12% 0.11%
JPY 0.11% 0.15% 0.15% 0.11% 0.06%   0.18% 0.16%
NZD -0.03% 0.00% -0.03% -0.06% -0.11% -0.17%   -0.01%
CHF -0.02% 0.00% -0.02% -0.03% -0.07% -0.16% 0.02%  

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).

RBA FAQs

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 “..to 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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