The AUD/USD pair experienced a decline to 0.6950 on Thursday, as the USD staged a recovery ahead of a speech by Jerome Powell at the Jackson Hole Symposium. Despite this drop, strong Australian PMIs are expected to limit the pair’s downside. The Reserve Bank of Australia’s hawkish views continue to support the Aussie against its peers, maintaining a positive stance.
The monetary policy divergence between the Federal Reserve and the RBA is a driving factor behind the AUD/USD pair’s movement. While the Fed is considering a less assertive approach toward interest rates, the RBA’s steadfast position has put the Aussie ahead of the Greenback. Market participants are anticipating minimal easing of 25 basis points for 2024, signaling a strong stand for the Australian dollar.
The market is closely watching the economic outlook for both Australia and the US. Soft labor market data in the US and strong August PMIs in Australia are influencing the pair’s trajectory. Manufacturing and services data in Australia show promising signs of economic strength, reinforcing the RBA’s hawkish policy stance. The future direction of the AUD/USD pair will heavily rely on incoming data from both countries.
In terms of technical analysis, the AUD/USD pair is currently on an upward trajectory, with a consolidation of gains amidst lower but firm momentum. The RSI is slightly bullish, suggesting ongoing upward pressure, while the MACD indicator supports a bullish tone. The pair has consolidated above the 0.6700 support level, with a critical resistance level around the recent high of 0.6760-0.6800.
Central banks play a crucial role in maintaining price stability within an economy. The mandate of major central banks such as the Fed, ECB, and BoE is to keep inflation close to 2%. By adjusting their benchmark policy rates, central banks can influence inflation levels. The decisions to cut or hike interest rates impact savings and lending rates, affecting the overall economy. Central banks strive to strike a balance between boosting economic growth and controlling inflation.
Central bank policy boards consist of members with varying views on monetary policy. ‘Doves’ advocate for a loose monetary policy to stimulate the economy, while ‘hawks’ prefer higher rates to control inflation. The chairman or president of the central bank leads meetings, aiming to create a consensus between members. Transparency is important, with members communicating their stance to the markets before policy meetings. A blackout period prevents public communication before policy events to avoid market disruptions.
