Australian Dollar Boosted By Rate Cut Hopes, China Stimulus

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The Australian Dollar is one of the leading advancers in global foreign exchange as confidence in a June rate cut at the Fed grows while China announces new measures to boost its economy.

The Pound to Australian Dollar exchange rate (GBP/AUD) has been in the ascendency in 2024 and reached a fresh 6-month low on Monday, but the failure at the 1.9553 high turns the near-term picture softer.

The Aussie Dollar's rebound is linked with the broader pullback in the USD as investors become more confident the Federal Reserve will cut rates in June.

"The US dollar extended its decline against its major peers yesterday, with the commodity-linked currencies aussie, kiwi, and loonie gaining the most," says Charalampos Pissouros, Senior Investment Analyst at XM.com.

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According to Pissouros, USD has come under selling interest after the ISM manufacturing and non-manufacturing PMIs raised questions about the performance of the U.S. economy, with Wednesday's JOLTs data adding to this theme.

Exchange rate action serves as a reminder that AUD is highly responsive to the global picture, benefiting when expectations for U.S. rate cuts grow. Falling U.S. rates are supportive of the global economic outlook, to which the ‘commodity currencies’ like AUD respond.

Investors are now watching Friday's U.S. jobs report; any weakness here can send GBP/AUD towards 1.92 support.

Fed Chair Powell meanwhile told U.S. lawmakers that if the economy evolves as projected, "it will likely be appropriate to start dialling back policy restraint at some point this year."

Analyst Antje Praefcke at Commerzbank says the market interpreted Powell's statements to members of the House as being consistent with a June rate cut, confirming the 2024 trend of pushing back against cuts might have run its course. (The market started 2024 anticipating rates would be cut at this month's Fed decision).

"The market interpreted Powell's statements as dollar-negative, presumably against the backdrop of weaker US figures in recent days, she says.

Fresh measures by Chinese authorities to stimulate the economy have also aided AUD.

China's financial planners are set for "a countrywide bonanza" for citizens to trade in old cars, fridges and washing machines for new ones as they try to stave off a trade war with the West and stimulate the economy.

The plan, outlined in a rare joint press conference on Wednesday by the country’s five top economic administrators, is a response to faltering demand, oversupply in manufacturing and incipient deflation.

So, a couple of pieces of the AUD puzzle have fallen in a supportive manner and this can arrest the GBP/AUD advance.

But, should events conspire against AUD and favour further GBP outperformance (GBP is 2024’s best performer), we are watching for a retest of 1.9570.

Domestically, March 19 is an important date as the RBA will meet to decide on the interest rate outlook.