Australian Dollar hangs near a psychological level, US Nonfarm Payrolls eyed
|- Australian Dollar strengthens on positive Aussie Producer Price Index data.
- Australia's PPI (YoY) grew by 4.1% in Q4, surpassing the previous growth of 3.8%.
- Former RBA board member, Warwick McKibbin, suggested cash rate may remain around 4.5% for some time.
- An expected decline in US Nonfarm Payrolls could further weaken the US Dollar.
The Australian Dollar (AUD) continues its upward momentum on Friday, recovering from a three-month low reached at 0.6508 on Thursday. The US Dollar (USD) faced downward pressure following mixed economic data from the United States (US). Moreover, the Australian Dollar (AUD) received support from improved Producer Price Index (PPI) data. Consequently, these factors collectively provide upward support for the AUD/USD pair.
Australian Bureau of Statistics has released the PPI (YoY) for the fourth quarter, indicating an improvement with a growth rate of 4.1%, surpassing the previous growth of 3.8%. Furthermore, an enhanced Australian money market is contributing support to strengthen the Aussie Dollar. In a Reuters Poll, analysts unanimously expect the Reserve Bank of Australia (RBA) to keep the interest rate steady at 4.35% in its February policy meeting.
Former RBA board member Warwick McKibbin suggests that the Australian cash rate may remain around 4.5% for an extended period. However, the Australian Dollar has encountered challenges, with bond traders heightening their expectations of early interest rate cuts by the Reserve Bank of Australia after an unexpectedly weak quarterly inflation report. Futures markets are fully pricing in two quarter-point reductions in 2024, with the first adjustment anticipated in August.
The US Dollar Index (DXY) experienced losses in the wake of mixed US economic data released on Thursday, compounded by subdued US Treasury yields. Initial Jobless Claims for the week ending on January 26 rose to 224K, surpassing the previous increase of 215K and the expected figure of 212K. However, the ISM Manufacturing PMI showed improvement, rising to 49.1 from the prior reading of 47.1, surpassing the anticipated figure of 47.0 in January. On Friday, additional labor data is scheduled for release, including US Average Hourly Earnings and Nonfarm Payrolls (NFP).
Daily Digest Market Movers: Australian Dollar strengthens on positive Aussie PPI
- Australian Producer Price Index (QoQ) grew by 0.9% in the fourth quarter, lower than the previous 1.08% growth.
- Australia’s Investment Lending for Homes declined by 1.3% in December, against the previous growth rate of 1.9%.
- Australia’s Home Loans fell by 5.6% in December as compared to the 0.5% growth in November.
- The preliminary US Nonfarm Productivity increased by 3.2% in Q4, higher than the expected 2.5% but came down from the previous reading of 4.9%.
- US Challenger Job Cuts rose to 82.307K in January from the previous 34.817K in December.
- US Unit Labor Costs reported a 0.5% rise against the 1.7% expected in the fourth quarter, swinging from the previous -1.1%.
Technical Analysis: Australian Dollar could test the psychological barrier at 0.6600
The Australian Dollar trades around 0.6580 on Friday, below the immediate resistance zone around 23.6% Fibonacci retracement at 0.6594 aligned with the psychological level at 0.6600. A successful breakthrough above the resistance zone may lead the AUD/USD pair toward testing the 21-day Exponential Moving Average (EMA) at 0.6614, followed by a crucial resistance level at 0.6650. On the downside, the AUD/USD pair could find the key support at a major level of 0.6550. A breach of this support might prompt the pair to retest the weekly low at 0.6508.
AUD/USD: Daily Chart
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 | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.07% | -0.05% | -0.07% | -0.28% | 0.06% | -0.06% | -0.06% | |
| EUR | 0.07% | 0.02% | 0.01% | -0.21% | 0.13% | 0.01% | 0.02% | |
| GBP | 0.07% | -0.01% | 0.01% | -0.23% | 0.12% | -0.01% | 0.01% | |
| CAD | 0.06% | -0.01% | 0.01% | -0.22% | 0.09% | -0.01% | -0.01% | |
| AUD | 0.28% | 0.22% | 0.25% | 0.22% | 0.34% | 0.24% | 0.22% | |
| JPY | -0.06% | -0.13% | -0.12% | -0.12% | -0.34% | -0.12% | -0.12% | |
| NZD | 0.07% | 0.00% | -0.02% | 0.00% | -0.24% | 0.09% | 0.00% | |
| CHF | 0.06% | 0.00% | 0.01% | 0.00% | -0.24% | 0.12% | 0.00% |
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 Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
Australian Dollar FAQs
What key factors drive the Australian Dollar?
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
How does the health of the Chinese Economy impact the Australian Dollar?
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
How does the price of Iron Ore impact the Australian Dollar?
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
How does the Trade Balance impact the Australian Dollar?
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
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