- The Australian dollar fell 0.27% to 0.6495 in trading on Friday.
- Mixed Judo Bank PMI data impacted the AUD, with manufacturing strong but service sector activity weak.
- US S&P PMI data was strong.
AUD/USD fell just below 0.6500 as the market focuses on the strength of the US Dollar. The US Dollar Index (DXY) hit a two-year high above 108.00.
The AUD/USD pair exhibits a mixed outlook, influenced by the interaction of a hawkish Reserve Bank of Australia (RBA) and mixed local economic data. However, the potential for future RBA rate hikes may limit the decline, although the overall trend remains bearish.
Daily Market Summary: Australian Dollar Trims Gains Against US Dollar as Strong S&P PMI Data Boosts Dollar
- Australia’s Judo Bank preliminary manufacturing PMI reading rose 2.1% to 49.4 in November. The services PMI fell 1.4% to 49.6, while the composite PMI fell 0.8% to 49.4.
- In the United States, the composite PMI rose 1.2% to 55.3 in November. The manufacturing PMI improved 0.3% to 48.8, while the services PMI rose 2% to 57 in November.
- U.S. business confidence hit a two-and-a-half-year high in November, according to S&P Global.
- This week, the USD pared losses as traders reduced bets on a December rate cut by the Fed following Fed Chair Jerome Powell’s hawkish comments.
- On the Australian Dollar side, the RBA could bail out the pair as the bank is reportedly considering rate hikes.
AUD/USD Technical Outlook: Outlook remains bearish as indicators remain negative and pair struggles to recover
The AUD/USD pair struggles to recover, limited by negative technical indicators and the 20-day simple moving average (SMA). The Relative Strength Index (RSI) remains deeply embedded in bearish territory below 30, indicating persistent selling pressure. Similarly, the Moving Average Convergence/Divergence (MACD) indicator prints red bars. These bearish signals suggest that the pair may continue to face difficulties in sustaining any significant recovery in the near term.
El RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages Australia’s monetary policy. Decisions are made by a Council of Governors in 11 meetings a year and in any ad hoc emergency meetings that are necessary. The RBA’s main mandate is to maintain price stability, which means an inflation rate of 2%-3%, but also “…contribute to currency stability, full employment and economic prosperity and well-being of the Australian people. Its main tool to achieve this is to raise or lower interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening monetary policy.
Although inflation has traditionally always been considered a negative factor for currencies, since it reduces the value of money in general, the truth is that in modern times the opposite has happened with the relaxation of cross-border capital controls. Moderately high inflation now tends to lead central banks to raise interest rates, which in turn has the effect of attracting more capital inflows from global investors looking for a lucrative place to store their money. This increases the demand for the local currency, which in the case of Australia is the Australian Dollar.
Macroeconomic data gauges the health of an economy and can impact the value of its currency. Investors prefer to invest their capital in safe and growing economies than in precarious and contracting economies. A greater influx of capital increases aggregate demand and the value of the national currency. Classic indicators such as GDP, manufacturing and services PMIs, employment and consumer sentiment surveys can influence the AUD. A strong economy may encourage the Reserve Bank of Australia to raise interest rates, also supporting the AUD.
Quantitative Easing (QE) is a tool used in extreme situations in which 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) in order to purchase assets – typically government or corporate bonds – from financial institutions, providing them with much-needed liquidity. . QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is carried out after QE, when the economic recovery is underway and inflation begins to rise. While in QE the Reserve Bank of Australia (RBA) buys government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets and stops reinvesting the maturing principal of the bonds. bonds you already own. It would be positive (or bullish) for the Australian Dollar.
