- The Australian Dollar softens in Thursday’s Asian session.
- Slower-than-expected Australian Q3 GDP and heightened expectations of RBA’s dovish stance exert some selling pressure on the Aussie.Â
- The US weekly Initial Jobless Claims and Goods Trade Balance are due later on Thursday.
The Australian Dollar (AUD) remains under selling pressure on Thursday. The disappointing Australian economic data and rising expectations for an early interest rate cut by the Reserve Bank of Australia (RBA) drag the Aussie lower. Additionally, the concerns about potential tariffs on imports from President-elect Donald Trump might contribute to the AUD’s downside.Â
Traders will monitor the US weekly Initial Jobless Claims and Goods Trade Balance on Thursday for fresh impetus. Any signs of softer US labour market data could weaken the Greenback and help limit the pair’s losses. On Friday, all eyes will be on the US Nonfarm Payrolls (NFP) report for November.Â
Australian Dollar retains negative bias amid downbeat data, RBA dovish bets
- Australia’s trade surplus increased to 5,953M MoM in October from 4,532M (revised from 4,609M) in September, better than the 4,500M forecasts.Â
- Australia’s Gross Domestic Product (GDP) grew 0.3% QoQ in the third quarter (Q3), compared with the 0.2% growth in Q2. This reading was below the market consensus of 0.4%.
- The final reading of Australia’s Judo Bank Services PMI improved to 50.5 in November from 49.6 in October, beating the estimation of 49.6.Â
- The US ISM Services PMI fell to 52.1 in November from 56.0 in October. This reading came in weaker than the expectation of 55.5.Â
- The US S&P Global Composite PMI declined to 54.9 in November versus 55.3 prior. Meanwhile, the Services PMI dropped to 56.1 in November from 57.0 in the previous reading. Both figures came in weaker than the estimations.Â
- The Fed Chair Jerome Powell said on Wednesday that the US economy is stronger now than the US central bank had expected in September when it began reducing interest rates, allowing Fed officials to potentially slow the pace of interest rate cuts ahead.
- San Francisco Fed President Mary Daly noted on Wednesday that the US central bank does not need to be urgent on rate cuts, adding that the Fed has more work ahead to achieve 2% inflation and lasting growth.
AUD/USD’s bearish momentum on the daily chart remains intact
The Australian Dollar trades on a softer note on the day. The negative outlook of the AUD/USD pair remains in play, characterized by the price holding below the key 100-day Exponential Moving Average (EMA) on the daily timeframe. The 14-day Relative Strength Index (RSI) stands below the 50-midline near 37.70, supporting the downward movement of the pair in the near term.Â
Sustained bearish momentum below 0.6325 could draw in more sellers to 0.6285, the low of October 3, 2023. Any follow-through selling could see a drop to the 0.6200 psychological mark.Â
On the upside, any follow-through buying above the upper boundary of the trend channel of 0.6512 could pave the way to 0.6626, the 100-day EMA. Sustained trading above the mentioned level could pave the way to 0.6687, the high of November 7.Â
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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