Australian Dollar hovers near a psychological level amid stable US Dollar, Aussie CPI eyed
|- Australian Dollar loses ground after recent gains as the US Dollar improves.
- Australian Retail Sales increased to 2.0% from the previous 0.2% decline.
- Improved risk appetite weakens the Greenback.
- Atlanta Fed President Raphael W. Bostic expects two quarter-point cuts by the end of 2024.
The Australian Dollar (AUD) trims its intraday gains as the US Dollar attempts to recover its recent losses on Tuesday. However, the AUD/USD pair seems to be benefiting from improved risk appetite, driven in part by comments from US Federal Reserve (Fed) members speculating about potential interest rate cuts by the end of 2024. Additionally, the upbeat economic data from Australia could reinforce the strength of the Aussie Dollar (AUD).
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. Furthermore, the monthly Building Permits came to 1.6% from 7.5% prior against the expected decline of 2.0%.
Traders will observe the Monthly Consumer Price Index data on Wednesday to gain more impetus on the Reserve Bank of Australia’s (RBA) interest rate trajectory. However, RBA is highly anticipated to refrain from rate cuts in its upcoming February meeting.
The US Dollar Index (DXY) faces challegnes due to the decline in US Treasury yields. Additionally, the softer comments from the Fed members triggered the risk-on market mood, which put pressure on the US Dollar (USD).
Atlanta Fed President Raphael W. Bostic shared insights on the 2024 economic outlook during an appearance at the Atlanta Rotary Club on Monday. Notably, he mentioned 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. He also mentioned that the US is on the path to achieving 2% inflation, and the goal is to remain on that path.
US Fed Governor Michelle W. Bowman addressed the South Carolina Bankers Association 2024 Community Bankers Conference on Monday. She mentioned that inflation could fall further with the policy rate held steady for some time. Bowman expressed the view 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.
Daily Digest Market Movers: Australian Dollar rises on improved risk appetite
- Australia Judo Bank Services PMI reported a reading of 47.1, falling short of market expectations that it would remain consistent at 47.6. The Composite PMI decreased to 46.9 from the previous figure of 47.4.
- Australia’s Judo Bank Manufacturing PMI indicated a modest contraction in manufacturing activity, declining to 47.6 in December from the previous reading of 47.8.
- Chinese wealth manager Zhongzhi Enterprise Group has filed for bankruptcy liquidation, facing a staggering $64 billion in liabilities.
- Dallas Fed President Lorie K. Logan, provided insights on Saturday, suggesting that a rate hike should not be ruled out given the recent easing in financial conditions. She emphasized the importance of avoiding premature easing, which could stimulate demand. Maintaining sufficiently tight financial conditions is seen as crucial to managing the risk of inflation picking back up and potentially reversing progress.
- 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 edges lower to 0.6700 psychological level
The Australian Dollar trades near 0.6710 on Tuesday. The AUD/USD pair could face a key resistance at the seven-day Exponential Moving Average (EMA) of 0.6737 before the major level at the 0.6750 level. A successful breakthrough above the latter could pave the way for the AUD/USD pair to challenge the psychological barrier at 0.6800. On the downside, the 23.6% Fibonacci retracement at 0.6725 acted as an immediate support followed by the psychological support at 0.6700. A break below the psychological support could push the AUD/USD pair to retest the major support at 0.6650 and the 38.2% Fibonacci retracement level at 0.6637.
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 weakest against the Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.05% | 0.00% | 0.04% | 0.15% | -0.22% | 0.09% | -0.06% | |
| EUR | 0.07% | 0.04% | 0.10% | 0.20% | -0.17% | 0.15% | -0.01% | |
| GBP | 0.02% | -0.04% | 0.06% | 0.16% | -0.20% | 0.10% | -0.02% | |
| CAD | -0.05% | -0.11% | -0.06% | 0.10% | -0.26% | 0.04% | -0.07% | |
| AUD | -0.15% | -0.20% | -0.16% | -0.10% | -0.36% | -0.05% | -0.22% | |
| JPY | 0.20% | 0.14% | 0.19% | 0.27% | 0.35% | 0.29% | 0.18% | |
| NZD | -0.08% | -0.15% | -0.10% | -0.04% | 0.06% | -0.31% | -0.14% | |
| CHF | 0.04% | -0.03% | 0.02% | 0.08% | 0.17% | -0.19% | 0.12% |
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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