Australian Dollar edges up as RBA keeps rate hike option quite possible
- The Australian Dollar rises against its major currency peers, except the US Dollar.
- Hawkish RBA minutes have strengthened the Australian Dollar.
- Investors await key Australian CPI data for July, which will be released on Wednesday.
The Australian Dollar (AUD) trades slightly higher against its major currency peers, except the US Dollar (USD), on Tuesday. In the European session, the Aussie pair is slightly down to near 0.7147.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.08% | 0.04% | 0.14% | 0.12% | 0.07% | 0.10% | 0.16% | |
| EUR | -0.08% | -0.04% | 0.06% | 0.03% | -0.02% | -0.01% | 0.07% | |
| GBP | -0.04% | 0.04% | 0.11% | 0.08% | 0.04% | 0.05% | 0.12% | |
| JPY | -0.14% | -0.06% | -0.11% | -0.05% | -0.09% | -0.08% | -0.00% | |
| CAD | -0.12% | -0.03% | -0.08% | 0.05% | -0.05% | -0.04% | 0.04% | |
| AUD | -0.07% | 0.02% | -0.04% | 0.09% | 0.05% | 0.02% | 0.06% | |
| NZD | -0.10% | 0.00% | -0.05% | 0.08% | 0.04% | -0.02% | 0.07% | |
| CHF | -0.16% | -0.07% | -0.12% | 0.00% | -0.04% | -0.06% | -0.07% |
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).
The antipodean gains came as Reserve Bank of Australia (RBA) minutes of the July policy meeting released earlier in the day showed that several board members see an interest rate hike “quite possible” if upside inflation risks start materializing.
“Several board members judged quite possible upside risks to inflation would crystallise,” RBA minutes showed. The minutes also revealed that officials discussed either raising the Official Cash Rate (OCR) by 25 basis points (bps) or leaving it unchanged at 4.35%.
Despite hawkish RBA minutes and officials warning of upside inflation risks, financial market participants don’t see the Australian central bank raising interest rates immediately.
Markets are pricing a slim 13% chance that the RBA could raise interest rates to 4.6% at its next meeting on September 28 and 29, while a move by February next year is about 67% priced in, Reuters reports.
Going forward, the next major trigger for the Australian Dollar will be the Consumer Price Index (CPI) data for July, which will be released on Wednesday.
RBA outlook in focus as Wells Fargo sees renewed inflation pressures
Economists at Wells Fargo expect Australia’s upcoming July CPI release to be “another test of whether the inflation relief seen in June can be sustained.” They forecast “headline inflation to rise 1.0% in July, leading the year-over-year rate down to 3.4%, while trimmed mean inflation remains at 3.6% year over year.” The bank notes that the “expected increase in monthly headline inflation largely reflects higher fuel prices following the expiration of temporary fuel excise relief and the renewed rise in fuel costs after the re-escalation of the Middle East conflict.”
Wells Fargo also highlights that “underlying inflation also remains sticky, with July’s NAB business survey showing some renewed pressure on costs and selling prices.” While they acknowledge that “June's CPI report reduced some pressure on the Reserve Bank of Australia (RBA) to tighten further,” they point out that “inflation expectations have moved higher and policymakers continue to describe policy as only ‘somewhat restrictive’,” leaving the door open to further policy tightening later this year.
AUD/USD Technical Analysis
In the daily chart, AUD/USD trades at 0.7146. The pair holds a bullish near-term bias as it trades above the 20-day exponential moving average (EMA) at 0.7081, suggesting that dips remain supported by the short-term trend baseline. The Relative Strength Index (RSI) at around 64 stays in positive territory without yet signaling overbought conditions, hinting that upside momentum is firm but not stretched.
On the downside, initial support emerges at the 20-day EMA near 0.7081, where a break would expose a deeper correction toward lower daily closes seen earlier in the month. As long as buyers defend this moving average and momentum holds near current RSI readings, the broader risk favors further gains, with any pullbacks likely to be viewed as corrective rather than the start of a reversal.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.