Australian Dollar attempts to snap recent losses as Australia’s inflation rises, commodity prices decline – Crypto News – Crypto News
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Australian Dollar attempts to snap recent losses as Australia’s inflation rises, commodity prices decline – Crypto News

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  • Australian Dollar snaps the losing streak due to a rise in monthly CPI.
  • Australia’s inflation reported a reading of 5.2% as expected, up from the 4.9% prior.
  • US Dollar (USD) trades around 106.30, the highest since December.
  • Upbeat US Treasury yields are contributing support for the Greenback.

The Australian Dollar (AUD) looks to snap a two-day losing streak against the US Dollar (USD) after Australia’s inflation data release, which showed an expected rise in August. However, the AUD/USD pair is failing to capitalize on hot Australian Consumer Price Index (CPI) inflation data due to risk aversion. The decline in commodity prices is capping the upside in the AUD.

Reserve Bank of Australia’s (RBA) Minutes from the September monetary policy meeting suggested that if inflation proves to be more enduring than expected, there may be a need for further tightening.

However, the argument for keeping the current policy unchanged appeared to be more compelling. As a result, this could also potentially limit the upside potential of the AUD/USD pair.

The US Dollar Index (DXY) trades around its highest level since December. This strength in the US Dollar is supported by the upbeat US Treasury yields. The yield on the 10-year US bond note has risen to a level not seen since October 2007.

United States (US) upbeat data released on Tuesday is reinforcing the strength of the Dollar. US Consumer Confidence along with Building Permits and House Price Index improved in the reported period.

Moreover, most members of the US Federal Reserve (Fed) still anticipate further interest rate increases later in the year, which could be attributed to robust economic activities in the US. The Fed recently made the decision to keep the interest rate within the range of 5.25% to 5.50%, maintaining the status quo.

Daily Digest Market Movers: Australian Dollar looks to more downside amid firmer US Dollar

  • Australia’s Monthly Consumer Price Index (YoY) for August rose to 5.2% as expected, up from the previous rate of 4.9%.
  • The upcoming October 3 meeting, which will be Michele Bullock’s first as a Governor of RBA, is not currently anticipated by the market to result in a rate hike.
  • Expectations for a rate increase are on the rise for the November and December meetings by RBA.
  • According to Bloomberg’s World Interest Rate Probability (WIRP), the likelihood of another rate hike increases to 85% for the first quarter of the following year.
  • Market participants will focus on Australia’s Retail Sales for August on Thursday, which is expected to grow by 0.3% lower than the previous rate of 0.5%.
  • The hawkish remarks from Fed officials have led to a broad-based strengthening of the US Dollar (USD) and have acted as a headwind for the AUD/USD pair.
  • US Consumer Confidence released on Tuesday for September rose by 103.0 from the previous reading of 108.7 in August.
  • Building Permits improved to 1.541M in August from 1.443M prior. While the House Price Index (MoM) for July rose to 0.8% compared to the market expectations of 0.5% from the previous rate of 0.4%.
  • Minneapolis Fed President Neel Kashkari stated on Tuesday that one more rate hike is expected through the end of this year 2023.
  • Traders await the US Durable Goods Orders report to be released on Wednesday. Additionally, the Core Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred measure of consumer inflation, is due on Friday. The annual rate is expected to reduce from 4.2% to 3.9%.

Technical Analysis: Australian Dollar hovers around 0.6400 psychological level, barrier at 21-day EMA

Australian Dollar trades higher around 0.6400 psychological level during the Asian session on Wednesday. AUD/USD pair could find a barrier around the 21-day Exponential Moving Average (EMA) at 0.6433, followed by the 0.6450 psychological level. A firm break above the latter could support the Aussie Dollar (AUD) to explore the region around 26.6% Fibonacci retracement at 0.6484 level. On the downside, the AUD/USD pair could find the key support around the monthly low at 0.6357 aligned to the 0.6350 psychological level.

AUD/USD: Daily Chart

Australian Dollar FAQs

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

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 influences the level of interest rates in the economy as a whole. The main goal 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 the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, 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 according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.

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