Australian Dollar remains steady amid a stable US Dollar, focus on PMI data
|- The Australian Dollar appreciates, possibly due to improved risk sentiment amid de-escalated tensions in the Middle East.
- Australia's Judo Bank Composite PMI signaled a swift expansion in the private sector during the second quarter.
- The US Dollar stays muted in response to the lower US Treasury yields.
The Australian Dollar (AUD) continues its upward trajectory for the second consecutive session on Tuesday, buoyed by improved risk appetite. This positive sentiment follows a relaxation of geopolitical tensions in the Middle East, as indicated by an Iranian official's statement last week, suggesting no immediate plans for retaliation against Israeli airstrikes, as reported by Reuters.
The Australian Dollar receives a slight boost following the release of Australia's Judo Bank Purchasing Managers Index (PMI) data on Tuesday. The Composite PMI surged to a 24-month high of 53.6 in April, an improvement from the previous month's 53.3. This signals a swift expansion in the Australian private sector during the second quarter, with significant growth propelled by the services sector.
The US Dollar Index (DXY), which measures the US Dollar (USD) against six major currencies, is under pressure due to a slight decline in US Treasury yields. The likelihood of the Federal Reserve's (Fed) interest rates remaining unchanged in the June meeting has risen to 84.4%, up from the previous week's 78.7%, according to the CME FedWatch Tool. Additionally, comments from Federal Reserve officials hint at a more hawkish stance regarding the trajectory of interest rates in June.
Investors are expected to closely monitor the US S&P Global Purchasing Managers Index (PMI) on Tuesday. Market sentiment suggests anticipation of improvements in both the manufacturing and services sectors for April. On Wednesday, attention will shift to the Australian Monthly Consumer Price Index and quarterly RBA Trimmed Mean CPI data.
Daily Digest Market Movers: Australian Dollar holds ground after PMI data
- In April, Australia's Judo Bank Manufacturing PMI surged to an eight-month high of 49.9, contrasting with March's 47.3. However, the Services PMI dipped to a two-month low of 54.2, down from the previous reading of 54.4.
- The weekly ANZ-Roy Morgan Australian Consumer Confidence declined by 3.2 points to hit its lowest level this year at 80.3, compared to the previous reading of 83.5. ANZ highlighted decreases in both economic and financial subindices. Confidence waned across various housing cohorts, with renters experiencing a notable decline.
- On Tuesday, the China Securities Journal suggested that there's a possibility the People's Bank of China (PBoC) might lower the Medium-term Lending Facility (MLF) rate on May 15 to decrease funding costs. Such a move could potentially impact the Australian market, given the robust trade relationship between China and Australia.
- The People's Bank of China maintained its Loan Prime Rate (LPR) at 3.45% on Monday. The LPR serves as a crucial benchmark rate for Chinese banks when determining the interest rates for loans offered to their clients. Given the significant economic ties between China and Australia, any changes in Chinese monetary policy have the potential to impact the Australian market.
- The Chinese Ministry of Commerce has announced a new tariff on US goods. Specifically, China has imposed a duty of 43.5% on imports of propionic acid from the United States. This chemical is extensively utilized in various sectors, including food, feed, pesticides, and medical applications, as per Reuters.
- According to a Bloomberg report, Chicago Fed President Austan Goolsbee remarked on Friday that progress on inflation had "stalled," and the Federal Reserve's current restrictive monetary policy is appropriate. Meanwhile, Reuters reported that Atlanta Fed President Raphael Bostic stated that the US central bank would refrain from cutting interest rates until the end of the year.
Technical Analysis: Australian Dollar moves above the major level of 0.6450
The Australian Dollar trades around 0.6460 on Tuesday. The pair is testing the pullback resistance near 0.6456. A breakthrough above this level could potentially enhance the recovery sentiment for the pair.
However, the 14-day Relative Strength Index (RSI) remains below the 50-level, and the bearishly resolved triangle still points to a bearish sentiment. Immediate support could be found at the major level of 0.6450, followed by the psychological level of 0.6400. If the latter is breached, it might exert pressure on the AUD/USD pair to revisit April’s low of 0.6362, followed by the major level of 0.6350.
On the upside, the AUD/USD pair could target the psychological level of 0.6500 and endeavor to breach into the symmetrical triangle, potentially weakening the bearish sentiment. The upper boundary of the channel could pose a resistance barrier around the 0.6639 level.
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 New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.01% | -0.01% | -0.03% | -0.14% | -0.04% | 0.01% | 0.01% | |
| EUR | 0.02% | 0.00% | -0.01% | -0.10% | -0.02% | 0.04% | 0.01% | |
| GBP | 0.01% | -0.01% | -0.02% | -0.12% | -0.03% | 0.02% | 0.02% | |
| CAD | 0.03% | 0.01% | 0.00% | -0.08% | -0.01% | 0.06% | 0.04% | |
| AUD | 0.13% | 0.10% | 0.11% | 0.08% | 0.08% | 0.14% | 0.11% | |
| JPY | 0.04% | 0.02% | 0.02% | -0.01% | -0.10% | 0.05% | 0.05% | |
| NZD | -0.02% | -0.04% | -0.04% | -0.06% | -0.15% | -0.05% | -0.02% | |
| CHF | 0.00% | -0.02% | -0.02% | -0.04% | -0.13% | -0.05% | 0.01% |
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
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.
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.
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.
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.
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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