The Australian Dollar (AUD) has seen a rise against the US Dollar (USD) due to the hawkish sentiment surrounding the Reserve Bank of Australia (RBA). Governor Michele Bullock’s comments on the potential upside risks to inflation and no anticipated rate cuts in the near future have added to the strength of the Aussie Dollar, supporting the AUD/USD pair.
On the other hand, the USD has depreciated as traders have fully priced in a 25 basis point rate cut by the US Federal Reserve in September. There is also a possibility of a 50 basis point cut, with the CME FedWatch tool indicating a 26% chance of such a move. Traders are closely monitoring the preliminary US Michigan Consumer Sentiment Index for August, set to be released on Friday.
The US Retail Sales saw a significant increase of 1.0% month-over-month in July, exceeding expectations and indicating a positive trend. Additionally, the People’s Bank of China (PBoC) renewed medium-term lending facility funds and lent through reverse bond repurchase agreements, adding liquidity to the market. Changes in the Chinese economy can impact the Australian market due to their close trade partnership.
Australian macroeconomic data, such as Employment Change and Consumer Inflation Expectations, have shown positive results. However, the Unemployment Rate has increased slightly. The Federal Reserve Bank of Chicago President expressed concern about the labor market rather than inflation, with rate cuts to be determined by economic conditions.
Technical analysis of the AUD/USD pair shows it testing the lower boundary of an ascending channel, with the 14-day Relative Strength Index (RSI) supporting bullish momentum. Support levels for the pair are around 0.6610 and 0.6593, while resistance levels lie near 0.6720 and 0.6798. A break below support could signal a bearish outlook.
The Reserve Bank of Australia (RBA) manages monetary policy for Australia with a focus on maintaining price stability, full employment, and economic prosperity. RBA’s main tool for achieving this is by raising or lowering interest rates, which affects the strength of the Australian Dollar. Economic indicators such as GDP, PMIs, employment, and consumer sentiment can impact AUD.
Quantitative Easing (QE) and Quantitative Tightening (QT) are tools used by the RBA in extreme situations to provide liquidity to financial institutions and influence the strength of the AUD. QE involves buying assets to increase liquidity, while QT involves reducing asset purchases to manage inflation. Both these measures can impact the value of the Australian Dollar in the global market.
