- Australian Dollar depreciates as the US Dollar gains ground despite the rising likelihood of Fed rate cuts.
- Australia’s stronger July inflation reduced the chances of an imminent Reserve Bank of Australia rate cut.
- The CME FedWatch tool indicates that more than 89% of a 25-basis-point Fed rate cut is expected in September.
The Australian Dollar (AUD) edges lower against the US Dollar (USD) following its five-day winning streak. The pair depreciates as the US Dollar (USD) gains ground amid persistent inflationary pressures in the United States (US), which heightened uncertainty over potential US Federal Reserve (Fed) rate cuts. The United States (US) August ISM Manufacturing Purchasing Managers Index (PMI) will be eyed later in the day.
The AUD/USD pair may regain its ground as the Greenback may continue to struggle, as the CME FedWatch tool indicates pricing in more than 89% of a 25-basis-point (bps) rate cut by the Fed at the September policy meeting, up from an 84% chance a week ago. Market participants are also awaiting labor market data this week that could shape the US Federal Reserve’s (Fed) policy decision in September. Key reports include ADP Employment Change, Average Hourly Earnings, and Nonfarm Payrolls for August.
Australia’s Monthly Consumer Price Index rose 2.8% year-over-year in July, beating both the previous 1.9% increase and the 2.3% forecast. The hotter inflation in July dampened the likelihood of a Reserve Bank of Australia (RBA) rate cut anytime soon, continuing to provide support for the Australian Dollar.
Australian Dollar struggles as US Dollar stages upward correction
- Australia’s Building Permits declined 8.2% month-over-month in July, surpassing the expected decline of 4.8%. The previous reading indicated an increase of 11.9%. Meanwhile, the annual data showed an increase of 6.6%, following a previous 27.4% rise, as data showed on Monday.
- Australia’s Private Sector Credit rose 0.7% month-on-month in July, following two straight 0.6% increases and marking the fastest growth since April. On an annual basis, private credit expanded 7.2%, up from 6.9% in the previous two months, the strongest pace since February 2023. Private Capital Expenditure rose 0.2% in the second quarter, from the previous decline of 0.1% but fell short of the expected 0.7% increase.
- China’s Caixin Manufacturing Purchasing Managers’ Index (PMI) jumped to 50.5 in August from 49.5 in July, according to the latest data released on Monday. It is worth noting that any change in the Chinese economy could influence AUD as China and Australia are close trading partners.
- China’s National Bureau of Statistics (NBS) reported on Sunday that the country’s Manufacturing PMI rose to 49.4 in August from 49.3 in July. The reading came in weaker than the expectation of 49.5 and marked five consecutive months of decline. However, the NBS Non-Manufacturing PMI climbed to 50.3 in August, versus 50.1 prior and in line with the market consensus.
- The US Dollar Index (DXY), which measures the value of the US Dollar against six major currencies, is gaining ground after five days of losses and trading around 97.70 at the time of writing. Investors also assessed Friday’s Personal Consumption Expenditures (PCE) Price Index, which signaled persistent inflationary pressures and heightened uncertainty over potential rate cuts.
- Market concerns increased about the Fed’s independence amid uncertainty over the legality of Trump’s dismissal of Fed Governor Lisa Cook, after a court hearing on Friday concluded without a decision on whether to temporarily halt the move.
- US Treasury Secretary Scott Bessent acknowledged on Monday that the Federal Reserve should be politically independent, but offered little clarity on his vague claim that the Fed has “made a lot of mistakes”, outside of not obeying President Trump’s demands for lower interest rates.
- US Personal Consumption Expenditures (PCE) Price Index held steady at 2.6% year-over-year in July, coming in line with the market expectation. The US core PCE Price Index, which excludes volatile food and energy prices, rose 2.9% YoY in July, as expected, following June’s increase of 2.8%. On a monthly basis, the core PCE Price Index rose 0.2% and 0.3%, respectively.
- The US Court of Appeals for the Federal Circuit upheld a ruling that the sweeping tariffs the US President Donald Trump unilaterally imposed on most other countries were illegal. Trump blasted the decision as “highly partisan” and vowed to appeal to the US Supreme Court.
- San Francisco Fed President Mary Daly said on Sunday that policymakers will be ready to cut interest rates soon, adding that inflation stemming from tariffs will likely prove temporary, per Bloomberg.
- Fed Governor Christopher Waller said on Thursday that he would support an interest-rate cut in the September meeting and further reductions over the next three to six months to prevent the labor market from collapsing, per Reuters.
- Fed Chair Jerome Powell said at the Jackson Hole symposium that risks to the job market were rising, but also noted inflation remained a threat and that a decision wasn’t set in stone. Powell also stated that the Fed still believes it may not need to tighten policy solely based on uncertain estimates that employment may be beyond its maximum sustainable level.
Australian Dollar tests 0.6550 barrier near five-week highs
The AUD/USD pair is trading around 0.6550 on Tuesday. The technical analysis of the daily chart suggests that the pair is trading above the ascending trendline, strengthening the bullish bias. Additionally, the pair is positioned above the nine-day Exponential Moving Average (EMA), indicating short-term price momentum is stronger.
The AUD/USD pair could test its initial barrier at the five-week high of 0.6568, reached on August 14, followed by the nine-month high of 0.6625, which was recorded on July 24.
On the downside, the primary support appears at the ascending trendline, aligned with the nine-day EMA of 0.6520 and followed by the 50-day EMA at 0.6502. A break below this crucial support zone would signal the emergence of a bearish bias and prompt the pair to test its three-month low of 0.6414, recorded on August 21.
(The story was corrected on August 2 at 2:40 GMT, to say in the second paragraph of the technical analysis, that the AUD/USD pair could test its initial barrier, not AUD/JPY.)
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 weakest against the US Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.16% | 0.14% | 0.35% | 0.05% | 0.22% | 0.33% | 0.12% | |
| EUR | -0.16% | -0.03% | 0.28% | -0.10% | 0.10% | 0.19% | -0.04% | |
| GBP | -0.14% | 0.03% | 0.30% | -0.07% | 0.11% | 0.20% | -0.02% | |
| JPY | -0.35% | -0.28% | -0.30% | -0.37% | -0.21% | -0.07% | -0.27% | |
| CAD | -0.05% | 0.10% | 0.07% | 0.37% | 0.14% | 0.32% | 0.06% | |
| AUD | -0.22% | -0.10% | -0.11% | 0.21% | -0.14% | 0.09% | -0.15% | |
| NZD | -0.33% | -0.19% | -0.20% | 0.07% | -0.32% | -0.09% | -0.22% | |
| CHF | -0.12% | 0.04% | 0.02% | 0.27% | -0.06% | 0.15% | 0.22% |
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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (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.
