Australian Dollar grapples to surpass a psychological level on a subdued US Dollar
|- Australian Dollar gains ground on improved National Australia Bank's Business Confidence.
- Australian share market rise has the potential to provide support for the AUD.
- National Australia Bank's Business Confidence improved to -1 in December from -9 prior.
- US Dollar experiences a positive bias on risk aversion due to the heightened geopolitical situation.
The Australian Dollar (AUD) edges higher on Tuesday after registering losses in the previous session. The improved National Australia Bank's Business Confidence might have contributed to underpinning the Aussie Dollar. Moreover, the Australian Dollar might find support from the improved performance of Australia's share market. However, the US Dollar (USD) managed to strengthen despite lower US Treasury yields, leading to some pressure on the AUD/USD pair.
Australia’s currency encounters headwinds due to speculation surrounding possible early interest rate cuts by the Reserve Bank of Australia (RBA). This speculation is driven by recent indicators such as subdued Aussie Consumer Confidence and Employment Change figures, contributing to concerns about the economic outlook.
The Chair of Australia's sovereign wealth fund Peter Costello commented that inflation in Australia is showing early signs of moderation. However, Costello emphasizes that there is still a considerable distance to cover to bring prices back within the RBA's target band. While inflation has decreased from its peak, it remains significantly outside the target range of 2.0% to 3.0%.
The US Dollar Index (DXY) holds steady following recent gains. The US Dollar experiences buying demand driven by risk aversion sentiment, a trend likely linked to the heightened geopolitical situation in the Middle East. Military actions conducted by the United States (US) and the United Kingdom (UK), including a new round of air strikes in Yemen targeting Iran-led Houthi terrorists, have contributed to an environment where investors seek safety in the safe-haven US Dollar.
US Conference Board has reported a slight improvement in the Leading Economic Index for December, moving from -0.5% in November to -0.1% in December. This surpassed expectations for an improvement to -0.3%. Looking ahead, Tuesday is expected to bring the release of the Richmond Fed Manufacturing Index for January.
Daily Digest Market Movers: Australian Dollar faces negative sentiment on risk aversion
- National Australia Bank's Business Conditions inched down to the reading of 7 in December from 9 prior.
- National Australia Bank's Business Confidence improved to -1 from the previous figure of -9.
- Australia’s Consumer Inflation Expectations remained steady at 4.5% in January.
- The People's Bank of China keeps its Loan Prime Rate (LPR) steady for both the one-year and five-year terms. The rate remains at 3.45% for the one year and 4.20% for the five years.
- San Francisco Fed President Mary Daly expressed her belief on Friday that the central bank still has significant work to accomplish in bringing inflation back down to the 2.0% target. She emphasized that it is premature to consider interest-rate cuts as an imminent measure.
- Atlanta Fed President Raphael Bostic reiterated his position on expectations for rate cuts ahead of the Fed entering the "blackout" period before the next rate meeting scheduled for January 31. Bostic emphasized his openness to adjusting his outlook on the timing of rate cuts and highlighted that the Fed remains data-dependent.
- The preliminary US Michigan Consumer Sentiment Index rose to 78.8 in January from 69.7 prior, exceeding the expected figure of 70.
- US Existing Home Sales Change (MoM) declined by 1.0% in December against the previous rise of 0.8%.
- US Housing Starts (MoM) surpassed expectations in December, reaching 1.46 million compared to the anticipated 1.426 million.
Technical Analysis: Australian Dollar floats below the psychological level at 0.6600
The Australian Dollar traded around 0.6580 on Tuesday, with immediate resistance noted at the psychological level of 0.6600. A decisive breakthrough above this psychological barrier may propel the AUD/USD pair to surpass the nine-day Exponential Moving Average (EMA) at 0.6609, followed by a notable level at 0.6650. Should the pair breach this significant level, it could set the stage for a potential test of the psychological barrier at 0.6700. Conversely, on the downside, key support is anticipated at the 50% retracement level of 0.6568, before reaching the major support level at 0.6550. A breach below the latter might trigger a downward move, prompting the AUD/USD pair to explore levels around the psychological mark of 0.6500, coupled with the 61.8% Fibonacci retracement level at 0.6497.
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 | -0.23% | -0.23% | -0.13% | -0.45% | -0.05% | -0.44% | -0.33% | |
| EUR | 0.23% | -0.01% | 0.10% | -0.22% | 0.17% | -0.21% | -0.10% | |
| GBP | 0.23% | 0.01% | 0.10% | -0.22% | 0.17% | -0.21% | -0.10% | |
| CAD | 0.13% | -0.09% | -0.10% | -0.31% | 0.07% | -0.31% | -0.22% | |
| AUD | 0.44% | 0.22% | 0.21% | 0.31% | 0.39% | 0.01% | 0.12% | |
| JPY | 0.06% | -0.18% | -0.19% | -0.08% | -0.39% | -0.38% | -0.28% | |
| NZD | 0.43% | 0.21% | 0.21% | 0.31% | -0.01% | 0.38% | 0.08% | |
| CHF | 0.32% | 0.10% | 0.10% | 0.20% | -0.12% | 0.28% | -0.10% |
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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