Australian Dollar gets a boost as RBA remains hawkish, improving market mood
- AUD/USD registers an additional boost, reaching 0.6610.
- RBA maintains its hawkish position, undergirding a strengthened AUD.
- Strong mid-tier data may fuel additional hawkish bets on the RBA hiking cycle.
The AUD/USD pair experienced an increase of 0.26% during Tuesday's session, settling near 0.6610, above the 100 and 200-day Simple Moving Average (SMA) convergence. The Reserve Bank of Australia's (RBA) unwavering hawkish stance and stronger mid-tier Australian economic data reported during the Asian session underpin the Aussie.
Considering the mixed Australian economic outlook and high inflation, the RBA has all the reasons to remain hawkish, which should continue benefiting the Aussie.
Daily digest market movers: Aussie finds more demand from strong confidence data
- The August Westpac consumer confidence figure came in at 85.0, beating a revised July figure of 82.7. This was the second straight improvement and the highest since February.
- Furthermore, July's NAB business confidence came up a bit short, landing at 1 against a revised June measure of 3.
- Markets are seeing strong odds of a cut by year's end, but if data continues coming in strong, investors might push the easing to 2025.
- On the US front, soft Producer Price Index (PPI) fueled USD weakness, which also favoured the pair’s upside.
AUD/USD technical outlook: Pair consolidates near significant resistance around 0.6610
The Relative Strength Index (RSI) hovers slightly above the neutral zone at 53, indicating a slightly bullish streak. The Moving Average Convergence Divergence (MACD) presents rising green bars.
This points out that the recent bullish recovery is taking shape, but the confirmation will be if the pair manages to consolidate above the 100 and 200-day SMA convergence near 0.6610. Support to the downside line up at 0.6600, 0.6580 and 0.6560.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.