Australian Dollar marks mild losses after mixed NAB figures

June 11, 2024 9:30 pm

  • AUD/USD wades through mixed trading as sellers regain momentum.
  • Focus is now on Wednesday’s US inflation figures and Fed dot plot.
  • Australia releases mixed NAB business survey figures.

On Tuesday, the AUD/USD pair experienced mixed trading, facing some bearish pressure and lingering around the 0.6605 area. This shift occurred as sellers re-entered the market after a minor rebound on Monday. The ongoing Federal Reserve (Fed) two-day meeting, due to conclude on Wednesday, and the US May inflation data release will be the key drivers this week.

On the Australian front, a mixed economic outlook with inflation stubbornly high might prompt the Reserve Bank of Australia (RBA) to delay cuts, which might limit losses for the Aussie.

Daily digest market movers: Aussie is under pressure as traders anticipate CPI and the Fed’s decision

  • On the US side, markets await the May Consumer Price Index (CPI) data due to be released on Wednesday.
  • Fed’s two-day meeting, which began on Tuesday and will end on Wednesday, has gripped the market’s attention. Any fresh clue on their interest rate forecast might trigger volatility in markets.
  • Guidance from an updated dot plot are anticipated as well.
  • NAB’s May business survey shows mixed results for Australia’s outlook as the business confidence dropped to a six-month low of -3 from 1 in April.
  • Business conditions dipped slightly to 6, just below the long-term average while the Employment sub-component showed improvement.
  • These indicators suggest the RBA should remain cautious about easing prematurely.

Technical analysis: AUD/USD maintains support despite retracement

Following recent declines, the Relative Strength Index (RSI) continues to be below 50, supporting the bearish mood, while the Moving Average Convergence Divergence (MACD) prints red bars, reflecting a growing selling pressure.

Nonetheless, the positive outlook remains the same as the pair remains above the 100 and 200-day SMA at approximately 0.6550, suggesting an overall positive trend.

Central banks FAQs

Central Banks have a key mandate which is making sure that there is price stability in a country or region. Economies are constantly facing inflation or deflation when prices for certain goods and services are fluctuating. Constant rising prices for the same goods means inflation, constant lowered prices for the same goods means deflation. It is the task of the central bank to keep the demand in line by tweaking its policy rate. For the biggest central banks like the US Federal Reserve (Fed), the European Central Bank (ECB) or the Bank of England (BoE), the mandate is to keep inflation close to 2%.

A central bank has one important tool at its disposal to get inflation higher or lower, and that is by tweaking its benchmark policy rate, commonly known as interest rate. On pre-communicated moments, the central bank will issue a statement with its policy rate and provide additional reasoning on why it is either remaining or changing (cutting or hiking) it. Local banks will adjust their savings and lending rates accordingly, which in turn will make it either harder or easier for people to earn on their savings or for companies to take out loans and make investments in their businesses. When the central bank hikes interest rates substantially, this is called monetary tightening. When it is cutting its benchmark rate, it is called monetary easing.

A central bank is often politically independent. Members of the central bank policy board are passing through a series of panels and hearings before being appointed to a policy board seat. Each member in that board often has a certain conviction on how the central bank should control inflation and the subsequent monetary policy. Members that want a very loose monetary policy, with low rates and cheap lending, to boost the economy substantially while being content to see inflation slightly above 2%, are called ‘doves’. Members that rather want to see higher rates to reward savings and want to keep a lit on inflation at all time are called ‘hawks’ and will not rest until inflation is at or just below 2%.

Normally, there is a chairman or president who leads each meeting, needs to create a consensus between the hawks or doves and has his or her final say when it would come down to a vote split to avoid a 50-50 tie on whether the current policy should be adjusted. The chairman will deliver speeches which often can be followed live, where the current monetary stance and outlook is being communicated. A central bank will try to push forward its monetary policy without triggering violent swings in rates, equities, or its currency. All members of the central bank will channel their stance toward the markets in advance of a policy meeting event. A few days before a policy meeting takes place until the new policy has been communicated, members are forbidden to talk publicly. This is called the blackout period.

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