- Australian Dollar extends gains as the US Dollar declines.
- Australia’s Manufacturing PMI eased to 48.0, while the Services PMI dropped to 47.6.
- China may approve over 1 trillion yuan in additional sovereign debt issuance.
- US Treasury Department confirmed the meeting with China to discuss bilateral economic policy matters.
- The pullback in US Treasury yields is weighing on the Greenback.
The Australian Dollar (AUD) trades in the positive territory on Tuesday, extending its gains for the second successive day. The AUD/USD pair receives upward support due to the correction in the US Dollar (USD), which could be attributed to the downbeat US Treasury yields.
Australia’s preliminary S&P Global Manufacturing and Services PMI for October eased, suggesting a contraction in both the manufacturing and services sectors. Markets expect the Reserve Bank of Australia (RBA) to tighten policy further. RBA Governor Michele Bullock stated that should inflation persist above the projected levels, the RBA is prepared to enact suitable policy measures.
US Treasury Department officially confirmed on Tuesday that the first meeting of the economic working group between the United States and China took place. This working group serves as a platform for discussing bilateral economic policy matters. According to the Treasury Department’s statement, the US and Chinese delegations convened virtually, engaging in a productive and substantive discussion on both domestic and global macroeconomic developments.
China is reportedly planning to approve slightly over 1 trillion yuan in additional sovereign debt issuance, as per a Reuters report citing three unnamed sources. The move is part of the Chinese Communist Party’s efforts to increase infrastructure spending and stimulate economic growth. The standing committee of the National People’s Congress (NPC) is expected to give the green light for the extra debt issuance on the final day of a meeting.
The US Dollar Index (DXY) seems set to extend its four-day losing streak, possibly influenced by downbeat US Treasury yields. After reaching its highest point since 2007, the 10-year Treasury yield took a U-turn, leading to a bit of selling pressure on the US Dollar (USD).
As per the CME FedWatch Tool, the likelihood of a November rate hike isn’t perceived by the markets. However, the odds for January 2024 still hover above 30%.
Daily Digest Market Movers: Australian Dollar extends its gains despite downbeat PMI data
- Australian S&P Global Composite PMI for October declined to 47.3 from the previous reading of 51.5. Manufacturing PMI eased to 48.0 compared to the prior figure of 48.7, while the Services PMI fell back into contraction, dropping to 47.6 from the previous month’s reading of 51.8.
- Westpac’s Chief Economist, Luci Ellis stated in a note that the core view presented that the Consumer Price Index (CPI) is expected to continue tracking lower and return to the RBA’s 2-3 percent target band in 2025, aligning with the central bank’s own expectations.
- Ellis highlighted several broader risks to the economy and inflation outlook that are being closely monitored. These include the resurgence of housing prices to levels close to pre-pandemic peaks, a global rise in bond yields, and China’s slower-than-expected recovery from a prolonged period of COVID-related lockdowns.
- Australia’s Unemployment Rate for September surprised on the positive side, coming in at 3.6% compared to the expectations of 3.7%, which was expected to remain consistent.
- Australian Employment Change for the same month was 6.7K, falling short of the consensus forecast of 20K. This is a notable decline from the 64.9K jobs added in August.
- Australia’s central bank expresses heightened concern about the inflation impact stemming from supply shocks. Governor of the Reserve Bank of Australia, Michele Bullock stated that if inflation persists above projections, the RBA will take responsive policy measures. There is an observable deceleration in demand, and per capita consumption is on the decline.
- China is set to host a significant financial policy meeting early next week, occurring once every five years. The primary objectives of this gathering are to proactively address and mitigate risks and to establish medium-term priorities for the expansive $61 trillion financial industry.
- Atlanta Fed President Raphael Bostic said on Friday that he believes the US central bank is unlikely to lower interest rates before the middle of next year. Fed Philadelphia President Patrick Harker reiterated his inclination to maintain interest rates.
- Fed Cleveland President Loretta Mester indicated that the US central bank is “at or near the peak of the rate hike cycle.” However, Mester acknowledged that the data released during the previous week could influence the central bank’s decision regarding the future of monetary policy.
- US weekly Initial Jobless Claims declined to 198K, falling short of the market expectations of 212K for the week ending October 14, the lowest level since January.
- Existing Home Sales Change fell 2.0% MoM in September and Existing Home Sales improved to 3.96M.
- The 10-year Treasury yield surged to 5.02%, marking its first time at such levels since 2007. However, it promptly reversed direction, declining to 4.84%.
- Market participants will closely monitor the US S&P Global PMI on Tuesday, the Q3 Gross Domestic Product (GDP) on Thursday, and the Core Personal Consumption Expenditures (PCE) on Friday. The attention will also be focused on the RBA Governor Bullock’s speech and the Consumer Price Index (CPI).
Technical Analysis: Australian Dollar hovers around 14-day EMA lined up with 0.6350 major level
The Australian Dollar hovers around 0.6350 on Tuesday, aligning with a crucial resistance around the 14-day Exponential Moving Average (EMA) at 0.6349, following a major level at 0.6400. A breakthrough above this resistance holds the potential to reach around the 23.6% Fibonacci retracement level at 0.6429. On the downside, the notable support emerges at the 0.6300 level followed by the monthly low at 0.6285.
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 strongest against the US Dollar.
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).
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.