- The Australian Dollar rises as positive market sentiment favors the risk-sensitive currencies.
- The Australian Dollar cheered the hawkish sentiment surrounding the RBA despite the weaker Aussie Trade Balance and Building Permits.
- The US Dollar faced a challenge as Fed Chair Powell dismissed the likelihood of a further rate hike.
The Australian Dollar (AUD) extends its gains on Thursday despite the weaker-than-expected Trade Balance and Building Permits data released by the Australian Bureau of Statistics. The AUD/USD pair receives support from the prevailing positive market sentiment after dovish remarks from the Federal Reserve Chairman Jerome Powell on Wednesday.
The Australian Dollar advances due to the hawkish sentiment surrounding the Reserve Bank of Australia’s (RBA) maintaining higher interest rates in 2024. The higher-than-expected domestic inflation data released last week has raised expectations that the RBA may delay interest rate cuts.
The US Dollar Index (DXY), which gauges the performance of the US Dollar (USD) against six major currencies, remains under pressure following the dovish remarks from Federal Reserve Chairman Jerome Powell after the interest rate decision on Wednesday. Powell dismissed the likelihood of a further rate hike, contributing to pressure for the US Dollar (USD). As expected, the US Federal Reserve (Fed) decided to maintain interest rates at 5.25%-5.50% in May’s meeting.
Traders are likely awaiting weekly Initial Jobless Claims, Nonfarm Productivity, and Factory Orders from the United States (US) on Thursday. These releases will likely provide further insights into the state of the United States (US) economy.
Daily Digest Market Movers: Australian Dollar appreciates due to improved risk appetite
- Australia’s Trade Balance (MoM) posted a surplus of 5,024 million in April, against the market anticipation of an increase to 7,370 million from the previous 7,370 million. Additionally, Australian Building Permits rose by 1.9%, falling short of the expected 3.0% in March. The February’s reading was -1.9%.
- The ASX 200 Index saw a modest increase on Thursday following the uptick in heavyweight financial firms, recovering some losses recorded Wednesday. This could be attributed to the positive market sentiment after Fed Chair Jerome Powell dismissed the chances of any further rate hike during the Federal Open Market Committee (FOMC) conference on Wednesday.
- Federal Reserve Chairman Jerome Powell highlighted that progress on inflation has recently stalled, suggesting that it would take more time than previously anticipated before the Fed could confidently expect inflation to approach its 2% target. Powell mentioned that if robust hiring persisted and inflation remained stagnant, it would justify delaying rate cuts.
- The ADP US Employment Change reported that private businesses added 192,000 workers to their payrolls in April, surpassing the expected increase of 175,000 and 208,000 prior.
- The ISM US Manufacturing PMI fell to 49.2 in April from March’s 50.3, against the market expectations of a stall. The data indicated a contraction in the US manufacturing sector, failing to sustain the momentum observed in the previous month, which marked the first expansion in 16 months.
- According to the Financial Review, ANZ predicts the Reserve Bank of Australia will start reducing interest rates in November, spurred by last week’s inflation data surpassing expectations. Likewise, Commonwealth Bank, Australia’s largest mortgage lender, has revised its forecast for the RBA’s first interest rate cut timing, now projecting a single cut in November.
- According to the CME FedWatch Tool, the likelihood of the Federal Reserve maintaining interest rates at their current level during the June meeting has risen to 91.0%, climbing from 83.5% a week ago.
Technical Analysis: Australian Dollar moves above 0.6500 back into the triangle
The Australian Dollar trades around 0.6530 on Thursday. The pair has re-entered the symmetrical triangle pattern. Additionally, the 14-day Relative Strength Index (RSI) is above the 50-level, indicating a bullish bias.
The AUD/USD pair might challenge the upper boundary, situated around the level of 0.6580, followed by the psychological level of 0.6600. A breakthrough above this level could lead the pair to explore the region around March’s high of 0.6667.
On the downside, the AUD/USD pair could potentially move toward the lower boundary of the symmetrical triangle around the nine-day Exponential Moving Average (EMA) at 0.6509. A break below the latter could exert pressure on the pair to test the throwback support at the 0.6480 level.
AUD/USD: Daily Chart
Australian Dollar price this week
The table below shows the percentage change of the Australian Dollar (AUD) against listed major currencies this week. The Australian Dollar was the strongest against the Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.18% | -0.22% | 0.40% | -0.04% | -1.91% | 0.15% | -0.22% | |
| EUR | 0.18% | -0.05% | 0.57% | 0.10% | -1.71% | 0.33% | -0.04% | |
| GBP | 0.23% | 0.04% | 0.61% | 0.14% | -1.67% | 0.37% | 0.00% | |
| CAD | -0.40% | -0.58% | -0.62% | -0.48% | -2.29% | -0.25% | -0.63% | |
| AUD | 0.04% | -0.10% | -0.14% | 0.48% | -1.81% | 0.23% | -0.14% | |
| JPY | 1.87% | 1.68% | 1.64% | 2.25% | 1.77% | 2.01% | 1.62% | |
| NZD | -0.15% | -0.33% | -0.38% | 0.24% | -0.24% | -2.06% | -0.37% | |
| CHF | 0.23% | 0.05% | -0.01% | 0.61% | 0.14% | -1.65% | 0.37% |
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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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