Today, the Australian dollar achieved a noticeable rise at the opening of the American session of the currency market, as it rose by 2.25% compared to its counterparts in other major currencies. This rise comes thanks to positive statements made by the Deputy Governor of the Reserve Bank of Australia today.
The Deputy Governor stressed that the main risks facing the Australian economy lie in the possibility that the current high inflation will enhance the Australian Reserve’s expectations for inflation levels in the future. He pointed out that the path towards achieving a reduction in inflation has become more difficult at the present time, given the risks surrounding the Australian economy, which may lead to inflation levels rising again.
This announcement comes in the context of growing concern about the effects of high inflation on global economies, and highlights the role of central banks in trying to confront these challenges. In this context, the rise of the Australian dollar reflects investor optimism about future measures that the Reserve Bank of Australia may take to address inflation challenges.
Confirmation of the statements of the Deputy Governor of the Reserve Bank of Australia has strengthened market expectations that the bank will continue its tightening approach, as the possibility of raising interest rates increases at the next meeting. This potential tightening trend reflects the bank’s willingness to take measures to meet the challenges of rising inflation.
Traders expect positive movements in the price of the Australian dollar to have a positive impact on the currency market, as this rise reflects investor optimism about the strong measures that the Reserve Bank may take. Raising the interest rate could attract more capital into the Australian economy, strengthening its overall economic strength.
AUD strengthened on positive outlook for Chinese activity
The strength of the Australian dollar also strengthened the markets’ optimism towards economic activity in China, as data issued this morning by the People’s Bank of China revealed the recording of new loans worth 738 billion Chinese yuan. This figure exceeds market expectations, which had expected the value of new loans to be recorded at only about 660 billion yuan.
This increase in the volume of borrowing reflects the markets’ optimism about the economic conditions in China. The volume of borrowing is an important indicator that reflects the spending rates of companies and individuals. This optimism resulting from China’s strong economic activity could positively impact China’s economic growth and thus could be reflected in Australia’s economic growth, given that Australia is a major trading partner of China.
In this context, it appears that the interaction of global economic events plays an important role in shaping currency movements, and affects the performance of the Australian dollar in global markets.
In second place, the British pound registered a 1.65% increase against other major currencies. Sterling continues to attract strong support as a result of positive news regarding UK economic growth data for September.
In data released last Friday, it showed an increase in GDP of about 0.2% in September. This number is better than currency market expectations, which indicated that economic growth would stabilize at zero levels. This increase was also higher than the previous reading for August, which had settled at 0.1%. This strong performance of the British economy is due to its gradual recovery from the effects of previous global economic events.
These positive developments in the British economy reflect a positive impact on the performance of the pound sterling in the currency market, as the market responds positively to the improvement of the economic situation in the United Kingdom.
Fed member’s comments push the dollar higher
In last place, the dollar ranked last on the list of the most profitable currencies in currency market trading, as it rose by 0.54% against the rest of the other major currencies. This rise is attributed to statements by US Federal Reserve Board member Mary Daly, who indicated that it is too early to say that the central bank has achieved victory in the fight against inflation.
Daly stressed that it is still too early to declare an end to the rate hike cycle, increasing market expectations that the Federal Reserve may raise interest rates again at its next meeting. This expectation had a positive impact on the dollar’s movement in the currency market today, as traders believe that this measure may contribute to reducing the impact of inflation.
These statements indicate continued conservatism in expectations about interest policy, which has raised speculation about the possibility of raising interest rates in the future. Declining expectations for the end of the rate hike cycle have contributed to supporting the US dollar, as it reflects investors’ optimism about possible tightening measures by the Federal Reserve. These expectations related to monetary policy contributed to increasing the momentum of the US dollar index during these trading sessions.
The attractiveness of the US dollar has increased during current trading, as investors are eagerly awaiting the release of US Consumer Price Index data for October. These data are expected to play a decisive role in the US Federal Reserve’s guidance regarding its future monetary policy, including the decision to raise interest rates or continue the temporary pause.
Bank of Montreal economists’ forecasts for the US dollar
Economists at the Bank of Montreal issued their forecasts for North American currencies, focusing in particular on the US dollar and its Canadian counterpart. Experts have noted that there is a risk of divergence in monetary policy setting between the Bank of Canada and the Federal Reserve given current economic conditions and near-term expectations. Despite this, experts are likely that the Bank of Canada will move towards a relatively more flexible stance, which may enhance understanding and reduce the possible divergence in monetary policy between the two countries.
According to experts at the Canadian Investment Bank, the relative flexibility of the Bank of Canada is expected to see the Canadian dollar continue to rise, even if only slightly.
On the other hand, economic forecasts at the Bank of Montreal expect the US dollar to witness a decline and loss of its gains in 2024 against most currencies, especially with the expected change in US Federal Reserve policy and the trend towards lowering interest rates in the coming year.
Earlier, economists at HSBC Bank expected the US dollar to continue to rise in the future, despite the US Federal Reserve’s recent decision to keep interest rates unchanged, a decision that is in line with market expectations.
Experts at the British bank noted that US Federal Reserve Governor Jerome Powell made a mix of hawkish comments during the meeting. Accordingly, these experts believe that the recent Fed meeting does not change expectations that the dollar may rise further in the future, especially against the euro and the pound.
The dollar’s anticipated ascent hinges on increasing hawkish signals from the US Federal Reserve, affirming its dedication to curbing inflation. Investors must vigilantly track economic and monetary shifts for strategic adjustments and informed decision-making.
