Australian dollar strengthened versus the US dollar as a result of the RBA and Fed’s policy difference.
The Australian Dollar (AUD) recovers daily losses and extends its winning streak against the US Dollar (USD) following the People’s Bank of China’s (PBoC) interest rate decision on Friday.
The PBoC decided to hold the one-year and five-year loan prime rates at 3.35% and 3.85%, respectively.
PBoC decided to hold its one-year and five-year Loan Prime Rates (LPRs) unchanged at 3.35% and 3.85%, respectively. As close commercial partners, any developments
Changes in the Chinese economy can have a substantial impact on Australian markets.
The AUDUSD pair gained strength after Thursday’s labor market report and the Federal Reserve’s (Fed) 50 basis point (bps) interest rate decrease on Wednesday. The divergence in monetary policy between the Reserve Bank of Australia’s (RBA) commitment to keeping interest rates higher for longer and the Fed’s easing cycle expected to influence the pair’s movement in the short run.
US dollar is under pressure as the Federal Reserve prepares to slash interest rates again in 2024.
The US dollar is under pressure as the Federal Reserve is expected to decrease interest rates further by the end of 2024. The most recent dot plot estimates indicate a steady lowering cycle, with the median rate for 2024 reduced down to 4.375% from 5.125% anticipated in June.
Fed Chairman Jerome Powell commented on the aggressive rate. decreased, stating: “This decision reflects our growing confidence that, with the appropriate adjustments to our policy, we can maintain a strong labor market, support moderate economic growth, and bring inflation down to a sustainable 2% level.”
Daily Market Movers: Australian Dollar Appreciates Due to Hawkish RBA Policy Outlook.
Commonwealth Bank (CBA) has shifted its projection for the first Reserve Bank of Australia rate drop by 25 basis points from November 2024 to December 2024. This shift follows a strong employment rate and the central bank’s sustained “hawkish” attitude, according to Yahoo Finance.
US Treasury Secretary Janet Yellen said on Friday that the Federal Reserve’s recent interest rate drop is a very encouraging sign for the US economy. According to Yellen, it indicates the Fed’s confidence that inflation has significantly declined and is approaching the 2% target. Meanwhile, the labor market remains strong.
Australian employment change was 47.5K in August, down from 58.2K in July but still significantly above the consensus projection of 25.0K. According to figures issued by the Australian Bureau of Statistics (ABS), the unemployment rate stayed stable at 4.2% in August, matching both expectations and the previous month’s result.
The Federal Open Market Committee (FOMC) reduced the federal funds rate to a range of 4.75% to 5.0%, the Fed’s first rate drop in more than four years. This step demonstrates the Fed’s commitment to protecting the job market and directing the economy away from any Signs of a recession.
Fed policymakers upgraded their quarterly economic predictions, raising the median expectation for unemployment to 4.4%.
Fed policymakers upgraded their quarterly economic predictions, raising the median expectation for unemployment to 4.4% by the end of 2024, up from 4% in June. They also increased their long-term prediction of the federal funds rate from 2.8% to 2.9%.
Goldman Sachs and Citi economists have revised their 2024 GDP growth projections for China to 4.7%, which is lower than Beijing’s aim of around 5.0%. SocGen views the situation as a “downward spiral,” whilst Barclays describes it as “from bad to worse” and a “vicious cycle.” Morgan Stanley has also warned that “things could get worse before they get better,” according to Reuters.
In August, China’s economy showed symptoms of fragility, with a prolonged slowdown in industry Activity and declining real estate prices. According to Business Standard, the National Bureau of Statistics announced on Saturday that Beijing is under increasing pressure to increase spending in order to stimulate demand.
Michele Bullock, Governor of the Reserve Bank of Australia (RBA), underlined that considering rate decreases is premature given the continually high inflation. Additionally, RBA Assistant Governor Sarah Hunter stated that, while the labor market is tight, wage growth appears to have peaked and is projected to slow further.
