Australian Dollar shows little movement after soft China CPI

July 10, 2024 5:24 am

  • The Australian Dollar depreciates as the US Dollar gains ground after Fed Chair Powell’s testimony on Tuesday.
  • China’s CPI declined by 0.2% in June, compared to a 0.1% decline in May.
  • Powell emphasized that a rate cut is not appropriate until the Fed gains confidence that inflation is moving toward 2%.

The Australian Dollar (AUD) losses its recent gains on Wednesday. The drop in the AUD/USD pair is due to the strengthening of the US Dollar (USD) following Federal Reserve (Fed) Chairman Jerome Powell’s testimony before the US Congress on Tuesday. Despite acknowledging improving inflation figures, the Fed remains firmly cautious.

China’s Consumer Price Index (CPI) rose at an annual rate of 0.2% in June, down from a 0.3% rise in May. The market had forecasted a 0.4% increase for the period. On a monthly basis, Chinese CPI inflation declined by 0.2% in June, compared to a 0.1% decline in May, which came in below the expected decline of 0.1%.

Traders are anticipating the second semi-annual testimony by Fed Chair Jerome Powell, as well as speeches by the Fed’s Michelle Bowman and Austan Goolsbee. Additionally, attention will be on the US Consumer Price Index (CPI) data, set to be released on Thursday.

Market forecasts generally predict that the annualized US core CPI for the year ending in June will remain steady at 3.4%, while headline CPI inflation is expected to increase to 0.1% month-over-month in June, compared to the previous flat reading of 0.0%.

Daily Digest Market Movers: Australian Dollar declines due to hawkish remarks from Fed’s Powell

  • Fed Chair Jerome Powell answered questions before the Senate Banking Committee on the first day of his Congressional testimony on Tuesday. Powell stated, “More good data would strengthen our confidence in inflation.” He emphasized that a “policy rate cut is not appropriate until the Fed gains greater confidence that inflation is headed sustainably toward 2%.” He also noted that “first-quarter data did not support the greater confidence in the inflation path that the Fed needs to cut rates.”
  • Australia’s 10-year government bond yield hold steady at around 4.4% as investors digest mixed domestic data. Consumer sentiment fell in July following a rise in June, reflecting household concerns over persistent inflation and the potential for further interest rate increases by the Reserve Bank of Australia (RBA). Meanwhile, business confidence rose to its highest level since January 2023.
  • Australia’s Westpac Consumer Confidence dropped by 1.1% in July, reversing the 1.7% increase seen in June. This marks the fifth decline in 2024, driven by ongoing worries about high inflation, elevated interest rates, and a sluggish economy.
  • US Nonfarm Payrolls (NFP) increased by 206,000 in June, following a rise of 218,000 in May. This figure surpassed the market expectation of 190,000.
  • The US Unemployment Rate edged up to 4.1% in June from 4.0% in May. Meanwhile, Average Hourly Earnings decreased to 3.9% year-over-year in June from the previous reading of 4.1%, aligning with market expectations.

Technical Analysis: Australian Dollar hovers around 0.6750

The Australian Dollar trades around 0.6740 on Wednesday. The analysis of the daily chart shows that the AUD/USD pair consolidates within an ascending channel, indicating a bullish bias. Additionally, the 14-day Relative Strength Index (RSI) remains above the 50 level, confirming the bullish momentum.

The AUD/USD pair may test the upper boundary of the ascending channel at approximately 0.6775. If it breaks through this level, the pair could aim for the psychological level of 0.6800.

On the downside, the AUD/USD pair may find support around the lower boundary of the ascending channel at 0.6670, with additional support near the 50-day Exponential Moving Average (EMA) at 0.6642. A break below this level could push the pair toward throwback support around 0.6590.

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 weakest against the Canadian Dollar.

  USD EUR GBP JPY CAD AUD NZD CHF
USD   -0.03% -0.04% 0.10% -0.05% 0.02% 0.75% 0.01%
EUR 0.03%   0.02% 0.14% 0.00% 0.02% 0.77% 0.03%
GBP 0.04% -0.02%   0.14% 0.00% 0.02% 0.76% 0.00%
JPY -0.10% -0.14% -0.14%   -0.12% -0.10% 0.60% -0.13%
CAD 0.05% -0.00% -0.00% 0.12%   0.05% 0.78% 0.02%
AUD -0.02% -0.02% -0.02% 0.10% -0.05%   0.73% -0.03%
NZD -0.75% -0.77% -0.76% -0.60% -0.78% -0.73%   -0.75%
CHF -0.01% -0.03% -0.01% 0.13% -0.02% 0.03% 0.75%  

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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (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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