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Australian Dollar lost further ground as investors look for clues on labor market data – Crypto News
- AUD/USD further diminished on Wednesday, falling beneath 0.6730.
- Australian employment figures are set to guide short-term trends that could lay the groundwork for a more hawkish RBA.
- Fed’s Barkin didn’t rule out a July rate cut.
The Australian Dollar (AUD) extended losses against the USD during Wednesday’s session, dipping to 0.6725. Following the declining streak from Monday’s and Tuesday’s sessions, the AUD intensified its losses as profit-taking by investors escalated. Nevertheless, the economic landscape suggests the AUD’s potential to withstand falls against the USD amidst differing monetary policies between the Federal Reserve and the Reserve Bank of Australia (RBA).
Despite indications of a fluctuating Australian economy, persistently high inflation is urging the RBA to postpone cuts, which may restrain the AUD’s downside. It is foreseen that the RBA will be amongst the final central banks from the G10 countries to implement rate cuts, a component that could bolster the AUD’s upswing.
Daily digest market movers: AUD path dependant on labor market data
- Investors are poised on the Australian Employment data, scheduled for release on Thursday. The forecast reveals that 20,000 job hunters found employment in June, a number parallel to the May figures.
- If the unemployment rate remains stable at 4.0%, it would signal a robust labor market which could bolster expectations of the RBA’s policy-tightening initiative.
- However, in the US, the market suspects a near-future rate cut by the Federal Reserve as data show signs of inflation easing.
- As for now, market projections currently factor in almost a 50% chance of the RBA increasing rates in September or November.
- On the other hand, the likelihood of a rate cut by the Federal Reserve in September is nearly to be priced in.
- The divergent monetary policies of the Fed and RBA might limit the losses of the pair.
Technical Analysis: AUD/USD enters a correction phase, overall outlook remains afloat
Despite the losses this week, the outlook of the AUD/USD remains overall positive, as the pair is maintaining levels not seen since the start of the year. After a surge of over 1.5% in July, indicators like the Relative Strength Index (RSI) and the Moving Average Convergence Divergence (MACD) reached overbought territory which instigated a slight correction.
The aim for buyers is to hold steady within the 0.6700-0.6730 to keep the short-term outlook positive.
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.
