AUD/USD Rises on Positive Australian Economic Data
- AUD/USD surges higher amidst positive Australian economic data.
- Monetary policy divergence continues to favor the Aussie.
- Focus shifts to US PCE data, which may influence market expectations for Fed rate cuts in November.
The AUD/USD pair saw a significant increase on Thursday, climbing by 0.90% to 0.6890. This surge was fueled by positive economic data from Australia and the hawkish stance taken by the Reserve Bank of Australia (RBA) this week. In contrast, the US Dollar weakened as market participants anticipate a larger rate cut by the Federal Reserve (Fed) in November.
Daily Digest Market Movers: Australian Dollar Strengthens on RBA’s Rate Hold
- The Australian Dollar gained ground against the US Dollar after the RBA held interest rates steady at 4.35% and maintained a hawkish outlook.
- RBA Governor Michelle Bullock emphasized that rate cuts are not under consideration at the moment.
- Investors are speculating that the Fed might implement another 50 basis point interest rate cut in November, following the initial 50 bps reduction to 4.75%-5.00% last week.
- Market watchers are eagerly awaiting the release of the US Personal Consumption Expenditure Price Index (PCE) data for August.
- The core PCE inflation data, which is closely monitored by the Fed, is projected to rise from 2.6% in July to 2.7%.
- A potential uptick in inflation could strengthen expectations for a 50 bps rate cut by the Fed in November, while a higher-than-expected reading could temper those expectations.
AUD/USD Technical Outlook: Aussie Shows Strength After Recent Decline
Following a drop to around 0.6800, the AUD/USD pair bounced back and approached the 0.6900 level. Key indicators like the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) suggest a consistent bullish trend, with the pair likely to retest levels above 0.6900.
In case of a downside move, the 0.6800 level has proven to be a strong support. Further support levels lie at 0.6750 and 0.6730.
RBA FAQs
The Reserve Bank of Australia (RBA) plays a crucial role in setting interest rates and managing monetary policy for Australia. Here are some key points to understand:
1. RBA Mandate
- The RBA’s primary mandate is to maintain price stability, aiming for an inflation rate of 2-3%.
- It also focuses on stabilizing the currency, achieving full employment, and promoting economic prosperity for Australians.
2. Impact of Inflation
- In modern times, higher inflation tends to lead central banks to raise interest rates, attracting more capital inflows and strengthening the local currency.
3. Macroeconomic Factors
- Macroeconomic data, such as GDP, PMIs, employment figures, and consumer sentiment, can influence the value of the Australian Dollar.
- A strong economy may prompt the RBA to raise interest rates, supporting the Aussie.
4. Quantitative Easing (QE)
- QE is a tool used by the RBA to provide liquidity by buying assets like government bonds, which can weaken the Australian Dollar.
5. Quantitative Tightening (QT)
- QT is the reversal of QE, undertaken when an economy is recovering and inflation is rising. It involves reducing asset purchases and can be bullish for the Australian Dollar.