Australian Dollar gains upward traction on subdued US Dollar, focus on US CPI data
|- Australian Dollar gains ground on improved risk-on sentiment.
- Australian Trade Balance rose to 11,437M against the market expectation of 7,500M.
- US Dollar faces downward pressure as traders price in the possibility of five rate cuts in 2024.
The Australian Dollar (AUD) gains upward traction for the second successive day on Thursday. The improved risk-on sentiment puts pressure on the US Dollar (USD), which in turn, supports the AUD/USD pair. Additionally, the upbeat Aussie Trade Balance data could also provide support to underpinning the Aussie Dollar (AUD).
Australia's trade surplus widened to 11,437 million month-on-month in December, surpassing the market expectation of 7,500 million and exceeding the previous reading of 7,129 million, according to the latest report from the Bureau of Statistics. While the economic signals in Australia offer a diverse perspective, with the Monthly Consumer Price Index for November showing a slight decrease and Retail Sales indicating an increase, lower-than-expected inflation figures in Australia also contribute to the perception of a potential pause by the RBA at its next February meeting.
The US Dollar Index (DXY) experiences a decline, attributed to weaker US Treasury yields. Additionally, an improved risk appetite among traders is evident as they speculate on the possibility of five rate cuts in 2024. New York Federal Reserve (Fed) President John Williams remarked on Wednesday that financial markets remain highly responsive to new data. Williams expressed confidence in the Fed's current position and suggested that it is now opportune to contemplate the future trajectory of interest rates.
Market participants await the release of December's Consumer Price Index (CPI) data from the United States (US) on Thursday. This economic data holds significant importance for assessing inflationary pressures and has the potential to significantly impact market expectations regarding the monetary policy stance of the US Federal Reserve.
Daily Digest Market Movers: Australian Dollar gains on improved risk appetite
- Australian Monthly Consumer Price Index (YoY) for November showed a slight reduction to 4.3%, falling slightly short of the market expectation of 4.4% from the previous figure of 4.9%.
- Australia’s Bureau of Statistics revealed the seasonally adjusted Retail Sales (MoM) for November, which rose by 2.0% instead of the expected 1.2%, swinging from the previous 0.2% decline.
- Aussie Building Permits (MoM) came to 1.6% from 7.5% prior against the expected decline of 2.0%.
- Chinese Defense Ministry has urged the United States to cease providing support to provocations by certain countries. China is calling on the US to adhere to the "One China Principle" and to halt the arming of Taiwan. Furthermore, the ministry is urging the US to strictly restrain front-line forces and refrain from hyping up security issues.
- Atlanta Fed President Raphael W. Bostic mentioned on Monday that inflation has declined more than initially anticipated and expressed the view of expecting two quarter-point cuts by the end of 2024. Bostic conveyed comfort with the current rate level and emphasized the importance of allowing the Fed's tight policy time to work on cooling off inflation.
- US Fed Governor Michelle W. Bowman expressed that inflation could fall further with the policy rate held steady for some time. Bowman said that the current policy stance appears sufficiently restrictive, but it might eventually become appropriate to lower the Fed's policy rate if inflation falls closer to the 2% target.
- US Nonfarm Payrolls rose to 216K in December, showing an improvement from the 173K reported in November. This figure surpassed the market expectation, which anticipated a rise of 170K.
- US Average Hourly Earnings (YoY) improved to 4.1% from 4.0% prior. Meanwhile, the monthly index remained consistent at 0.4% against the expected decline of 0.3%.
- US ISM Services Purchasing Managers Index (PMI) came in at 50.6 against the expected 52.6 and 52.7 prior. While the Services Employment Index reduced to 43.3 from the previous reading of 50.7.
Technical Analysis: Australian Dollar looks to approach 0.6750 major level
The Australian Dollar trades near 0.6720 on Thursday situated below the nine-day Exponential Moving Average (EMA) at 0.6724. A potential breakthrough above the latter could bring the AUD/USD pair closer to the key barrier at 0.6750. Conversely, on the downside, the 0.6700 level holds importance as a significant psychological support following the major support of 0.6650. A break below the latter could push the AUD/USD pair to navigate the area around the 38.2% Fibonacci retracement level at 0.6637. If the price drops below this level, it may lead the AUD/USD pair to explore the territory around the psychological level of 0.6600.
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 US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.04% | -0.17% | -0.15% | -0.30% | -0.23% | -0.37% | -0.11% | |
| EUR | 0.05% | -0.12% | -0.11% | -0.24% | -0.19% | -0.35% | -0.05% | |
| GBP | 0.16% | 0.12% | 0.02% | -0.12% | -0.07% | -0.22% | 0.08% | |
| CAD | 0.15% | 0.11% | -0.02% | -0.13% | -0.08% | -0.22% | 0.07% | |
| AUD | 0.28% | 0.26% | 0.13% | 0.16% | 0.07% | -0.09% | 0.21% | |
| JPY | 0.23% | 0.19% | 0.06% | 0.06% | -0.08% | -0.16% | 0.13% | |
| NZD | 0.35% | 0.34% | 0.22% | 0.20% | 0.06% | 0.14% | 0.31% | |
| CHF | 0.09% | 0.05% | -0.08% | -0.07% | -0.20% | -0.15% | -0.29% |
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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