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  • Australian Dollar’s strength is reinforced by stronger Retail Sales. 
  • Australia’s Retail Sales surged to 0.9%, significantly higher than the market consensus of 0.3%.
  • US and China have agreed on a meeting between Presidents Joe Biden and Xi Jinping in November.
  • US Dollar encountered a challenge after a moderate Core PCE Price Index data on Friday.

The Australian Dollar (AUD) extends gains for the third successive session, continuing the winning streak on Monday after rebounding from the yearly lows. The AUD/USD pair continues with the gains due to the weaker US Dollar (USD), which could be attributed to the economic data released from the United States (US) on Friday. Furthermore, the Reserve Bank of Australia (RBA) is expected to raise policy rates in the upcoming meeting on November 7.

Australia’s Retail Sales s.a. (MoM) for September surprised the market with a significantly higher reading compared to both the market consensus and the previously recorded figure. During the previous week, Australia’s Consumer Price Index (CPI) showed growth in the third quarter of 2023, exceeding the uptick observed in the second quarter. This elevated inflation scenario heightens the likelihood of a 25 basis points rate hike by the Reserve Bank of Australia (RBA) at its upcoming policy meeting on November 7.

Reports suggest that the US and China have agreed in principle on a meeting between Presidents Joe Biden and Xi Jinping in November. After months of careful diplomatic maneuvering to repair ties, this potential meeting opens the door for constructive dialogue between the two nations. The positive market sentiment stemming from this development could potentially boost the commodity-linked Aussie Dollar.

The US Dollar Index (DXY) pushes to recover lost ground following recent setbacks. The Greenback encountered a hurdle as the Core Personal Consumption Expenditures Price Index (YoY) showed a decline in September. However, the monthly data revealed an anticipated increase. The University of Michigan Consumer Index exceeded expectations but failed to add a favorable twist to the US Dollar. This demonstrates that the market is predicting no changes to interest rates in the upcoming Federal Open Market Committee (FOMC) meeting.

Daily Digest Market Movers: Australian Dollar gains ground on subdued US Dollar, RBA interest rates hike

  • Australia’s Retail Sales s.a. (MoM) for September came in at 0.9%, a significantly higher reading compared to the market consensus of 0.3% and 0.2% previously.
  • Australia’s Producer Price Index (PPI) showed a slight easing to 3.8% on a yearly basis in the third quarter (Q3), compared to the 3.9% recorded in the previous quarter. On a quarterly basis, the nation’s PPI increased to 1.8%, a notable rise from the previous reading of 0.5%.
  • Australian Consumer Price Index (CPI) reached 1.2% in the third quarter of 2023, surpassing the 0.8% uptick in the previous quarter and the market consensus of 1.1% in the same period.
  • Australia’s S&P Global Composite PMI in October slipped to 47.3 from the prior reading of 51.5. The Manufacturing PMI experienced a slight easing to 48.0 compared to the previous figure of 48.7, and the Services PMI regressed into contraction territory, dropping to 47.6 from the previous month’s reading of 51.8.
  • Australia’s RBA expressed 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.
  • US Core Personal Consumption Expenditures Price Index (YoY) declined to 3.7% in September from the previous reading of 3.8%. However, the monthly index increased to 0.3%, as anticipated from 0.1% previously.
  • The University of Michigan Consumer Index exceeded expectations in October, reporting a figure of 63.8, which was expected to remain consistent at 63.0.
  • The market sentiment leans towards the anticipation of no changes to interest rates by the US Federal Reserve (Fed) in the upcoming meeting on Wednesday.
  • The preliminary US Gross Domestic Product (GDP) Annualized showed growth in the third quarter, expanding by 4.9%, a notable improvement from the previous reading of a 2.1% expansion and surpassing the market expectation of 4.2%. However, there was a decline in US Core Personal Consumption Expenditures, declining to 2.4% in the third quarter from the 3.7% recorded previously.
  • Investors will focus on the US ADP Employment Change, ISM Manufacturing PMI for October, along with the Fed Interest Rate Decision on Wednesday.

Technical Analysis: Australian Dollar moves above the 0.6350 psychological level

The Australian Dollar is on an upward path, hovering around 0.6340 on Monday, in sync with a significant barrier at the 0.6350 level. This movement follows a rebound from the yearly low at 0.6270, supported by a key level around 0.6250. The 21-day Exponential Moving Average (EMA) at 0.6352 stands out as a crucial resistance, succeeding the major level at 0.6400. A successful breach above this resistance could propel the currency towards the 23.6% Fibonacci retracement level at 0.6417.

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 Swiss Franc.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.01% 0.01% -0.08% -0.26% -0.05% -0.30% 0.11%
EUR -0.01%   0.00% -0.10% -0.27% -0.06% -0.32% 0.09%
GBP 0.00% 0.01%   -0.12% -0.28% -0.05% -0.32% 0.11%
CAD 0.12% 0.09% 0.08%   -0.18% 0.03% -0.23% 0.19%
AUD 0.27% 0.29% 0.29% 0.17%   0.24% -0.03% 0.39%
JPY 0.05% 0.06% 0.14% -0.06% -0.22%   -0.30% 0.16%
NZD 0.34% 0.34% 0.33% 0.24% 0.06% 0.28%   0.43%
CHF -0.09% -0.08% -0.08% -0.18% -0.35% -0.14% -0.39%  

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).

RBA FAQs

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.

Source: https://www.fxstreet.com/news/australian-dollar-continues-the-winning-streak-amid-stronger-retail-sales-202310300121