Australian Dollar retraces recent gains ahead of US inflation data
|- Australian Dollar trades lower while the US Dollar looks to recover losses.
- Australia’s consumer sentiment declined by 2.6% in November, compared to the previous growth of 2.9%.
- Greenback could gain ground due to the recovery in US bond yields.
The Australian Dollar (AUD) trades lower on Tuesday while the US Dollar (USD) attempts to recover recent losses on the back of a recovery in US Treasury yields.
Australia’s Westpac Consumer Confidence revealed on Tuesday that consumer sentiment fell substantially in November, which could undermine the Aussie Dollar (AUD). Additionally, the AUD was under pressure after the Reserve Bank of Australia (RBA) struck a dovish chord in its last meeting.
RBA painted a challenging economic picture in its Monetary Policy Statement (MPS) last Friday, pointing to stubborn inflation and a sluggish Australian economy. The RBA has its sights set on realigning inflation with its target.
AUD could have cheered the hawkish statement from the RBA Assistant Governor (Economic) Marion Kohler. Kohler stated that the decline in inflation is expected to be slower than initially anticipated. This is attributed to the persistent high level of domestic demand and robust pressures from labor and other costs. Kohler emphasized the need for a tighter policy to address the challenges posed by elevated inflation.
The US Dollar Index (DXY) struggles to snap a two-day losing streak ahead of the inflation data from the United States (US) set to be released on Tuesday. Projections suggest that the Consumer Price Index (CPI) will rise in October at a slowing pace. The forecast for the core annual rate remains steady. If the data aligns with expectations, it could solidify the market's belief that the Federal Reserve (Fed) has concluded its interest rate hikes.
Daily Digest Market Movers: Australian Dollar maintains its position after rebounding from the previous week's low
- Australia’s Westpac Consumer Confidence declined by 2.6% in November, swinging from the previous growth of 2.9%.
- RBA highlighted the challenges stemming from persistent inflationary pressures and a sluggish domestic economy in its Monetary Policy Statement (MPS) last Friday.
- RBA board acknowledges the financial struggles of many households. Budgets are indeed feeling the squeeze. In a twist of economic dynamics, the central bank painted a mixed picture by raising its forecasts for both inflation and GDP growth.
- RBA increased the Official Cash Rate (OCR) from 4.10% to a 12-year high of 4.35%, responding to the latest Monthly Consumer Price Index (YoY) for September, which indicated a notable increase of 5.6% compared to the expected 5.4% growth.
- Australia’s TD Securities Inflation (YoY) eased at 5.1% in September from 5.7% prior.
- Economists at the National Australia Bank (NAB) anticipate another 25 basis points hike in February following the Q4 inflation data. Additionally, NAB believes rate cuts will unlikely commence until November 2024.
- The upcoming US-Sino Presidential meeting is on the horizon, and US President Joe Biden aims to rebuild military-to-military connections with China. The much-anticipated face-to-face between Biden and Chinese President Xi Jinping is scheduled for Wednesday during the Asia-Pacific Economic Cooperation summit in San Francisco., marking their first in-person meeting in a year.
- China's Consumer Price Index (CPI) witnessed an annual decline of 0.2% in October, compared to the expected 0.1% decrease. The monthly CPI dropped by 0.1%, contrasting with the earlier 0.2% growth. A weaker economic scenario in China casts a shadow over the Aussie Dollar (AUD), given Australia's heavy reliance on its largest trading partner.
- Federal Reserve (Fed) Chair Jerome Powell surprised in his speech on Thursday, taking a more hawkish stance than anticipated. Powell expressed concerns that the current policies might not be restrictive enough to reel inflation to the coveted 2.0% target.
- US Monthly Budget Statement reported a deficit of $67B in October, compared to the expected deficit of $65B.
- US preliminary US Michigan Consumer Sentiment data for November showed a dip in the mood among consumers. It fell to 60.4 from 63.8 in the previous month.
Technical Analysis: Australian Dollar remains above 0.6350 followed by the barrier at the 14-day EMA
The Australian Dollar trades higher near 0.6380 on Tuesday, with the 14-day Exponential Moving Average (EMA) at 0.6389 as the initial resistance. A significant barrier is also present at the psychological level of 0.6400. If there's a convincing breakthrough above this level, it may pave the way for the AUD/USD pair to explore the region around the 23.6% Fibonacci retracement at 0.6417. On the downside, the major support level at 0.6350 comes into play, followed by the three-week low at 0.6314.
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 US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.04% | 0.08% | 0.12% | 0.18% | 0.04% | 0.25% | 0.12% | |
| EUR | -0.04% | 0.04% | 0.08% | 0.15% | 0.00% | 0.22% | 0.08% | |
| GBP | -0.08% | -0.04% | 0.04% | 0.11% | -0.04% | 0.16% | 0.05% | |
| CAD | -0.13% | -0.08% | -0.04% | 0.07% | -0.08% | 0.12% | 0.02% | |
| AUD | -0.18% | -0.15% | -0.11% | -0.07% | -0.15% | 0.07% | -0.06% | |
| JPY | -0.04% | 0.00% | 0.05% | 0.09% | 0.14% | 0.23% | 0.08% | |
| NZD | -0.24% | -0.21% | -0.16% | -0.11% | -0.04% | -0.21% | -0.11% | |
| CHF | -0.12% | -0.08% | -0.05% | 0.00% | 0.06% | -0.08% | 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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