- AUD/USD recovered toward 0.6440 on Monday after sinking to 0.6350 on Friday.
- Improved market sentiment and Chinese stimulus hopes boost the Aussie.
- Focus shifts to the RBA’s monetary policy decision on Tuesday.
Friday’s sharp decline was triggered by the stronger than expected US Nonfarm Payrolls (NFP) report and rising bets for an early interest rate cut by the Reserve Bank of Australia (RBA). Monday’s rebound was supported by improved market sentiment and fresh optimism surrounding potential stimulus measures from China.
US November NFP data from Friday showed a robust 227,000 gain, well above expectations, along with stable Average Hourly Earnings growth at 0.4% MoM. US CPI data on Wednesday remains as another key driver for AUD/USD this week.
Daily digest market movers: Aussie rebounds as China pledges more fiscal support, CPI looms
- AUD/USD gains on improved sentiment and stimulus expectations from China.
- China’s leaders announced plans for proactive fiscal and looser monetary policies to accelerate domestic consumption in 2024.
- Weak Chinese CPI data (-0.6% in November, worse than expected) highlights challenges in the recovery but bolsters stimulus speculation.
- In Australia, markets await the RBA’s monetary policy decision on Tuesday, with no change in the 4.35% rate expected. However, comments on easing timing will be key for the Aussie’s direction.
AUD/USD technical outlook: Recovery tests resistance near 0.6440
The AUD/USD pair remains in a bearish trend but showed signs of recovery on Monday, breaking above the 0.6400 level. The Relative Strength Index (RSI), a momentum indicator, spiked back toward its midline but remains in negative territory, suggesting lingering selling pressure. Meanwhile, the Moving Average Convergence Divergence (MACD) indicator printed a green bar for the first time in days, indicating a potential shift in momentum.
Immediate resistance is seen at 0.6445, followed by 0.6480. Support lies at Friday’s low of 0.6350. The pair’s next moves will largely depend on Tuesday’s RBA decision and Wednesday’s US CPI release, both of which are likely to provide significant direction.
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-rebounds-after-fridays-plunge-investors-await-us-cpi-202412092018