Australian Dollar recovers the recent losses on weaker US Dollar
|- Australian Dollar regains ground amid mixed US economic data.
- Australia’s data showed a slowdown in economic activities during November.
- RBA Governor Bullock mentioned that policy tightening is the appropriate response to demand-driven inflation.
- NAB expects another RBA rate hike at the February 2024 meeting.
The Australian Dollar (AUD) snaps the recent losses on Thursday as the US Dollar (USD) retreats after hitting gains for two successive days. However, the AUD/USD pair faced downward pressure, likely due to increased demand for the Greenback in the previous session following the release of economic reports from the United States (US). Market activity is subdued as traders prepare for the Thanksgiving Day holiday in the US on Thursday, with shortened trading sessions expected on Friday.
Australia's economic activity shows signs of a slowdown in November, according to Thursday's data. The preliminary Judo Bank Manufacturing PMI for the month is reported at 47.7, down from the previous month's 48.2. Judo Bank Services PMI also declined to 46.3 from the prior 47.9, and the Composite PMI decreased to 46.4 from the previous reading of 47.6.
Reserve Bank of Australia (RBA) Governor Michele Bullock addressed the recent monetary policy decision at the ABE Annual Dinner in Sydney on Wednesday. She noted that the inflation challenge is increasingly driven by domestic factors, particularly demand. Bullock emphasized that monetary policy tightening is the appropriate response to demand-driven inflation. While supply-chain inflation is easing, Australian inflation remains broad-based, with the trimmed mean still too high.
Governor Bullock also mentioned that prices are rising strongly for most goods and services, and service costs are increasing due to high demand. RBA's liaison with firms indicates persistent domestic cost pressures, with high capacity utilization and a tight labor market. Bullock highlighted the need to cool demand while ensuring employment growth. Furthermore, the National Australia Bank (NAB) anticipates another RBA rate hike, expecting it to occur at the February 2024 meeting.
The US Dollar Index (DXY) experienced a rebound after the release of mixed US economic reports, continuing its correction but losing momentum amid higher equity prices. US Jobless Claims data on Wednesday showed a greater-than-expected decline in the week ending on November 17, with Initial Claims falling to 209K from 233K. Durable Goods Orders fell 5.4% in October, exceeding the expected 3.1% decline. However, the University of Michigan Consumer Sentiment Index for November stood at 61.3, compared to the expected reading of 60.5.
Daily Digest Market Movers: Australian Dollar attempts to regain ground as US Dollar weakens
- Australia’s Westpac Leading Index (MoM) for October contracted by 0.03% against the previous 0.07% rise.
- RBA's meeting minutes revealed that the board acknowledged a "credible case" against an immediate rate hike but considered the case for tightening stronger due to increased inflation risks. The decision on further tightening would hinge on data and risk assessment.
- RBA’s minutes also stressed the importance of preventing even a modest rise in inflation expectations. Board forecasts assumed one or two more rate rises, and rising house prices suggested policy might not be overly restrictive.
- Chinese authorities are expected to take measures to support the real estate sector by drafting a list of 50 eligible developers, both private and state-owned. This list is expected to guide financial institutions in providing support through various means such as bank loans, debt, and equity financing.
- The Federal Open Market Committee (FOMC) meeting minutes reveal that members would entertain the idea of tightening monetary policy further if incoming information suggests insufficient progress toward the Committee's inflation objective.
- FOMC members unanimously agree that policy should stay restrictive for some time until there is clear and sustainable evidence of inflation moving down toward the Committee's target.
- US Existing Home Sales Change (MoM) for October declined by 4.1% as compared to the previous fall of 2.2%.
Technical Analysis: Australian Dollar remains below 0.6550, support at the 23.6% Fibonacci retracement
The Australian Dollar hovers around the 0.6540 level on Thursday. The 23.6% Fibonacci retracement at 0.6513 could serve as a key support. A potential break below this level might find support from the nine-day Exponential Moving Average (EMA) at 0.6510, coupled with the major level at 0.6500. On the upside, breaching the barrier at the 0.6550 major level could pave the way for a revisit to the three-month high at 0.6589, situated 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 | -0.18% | -0.17% | -0.21% | -0.33% | -0.27% | -0.65% | -0.16% | |
| EUR | 0.19% | 0.01% | -0.04% | -0.16% | -0.10% | -0.46% | 0.03% | |
| GBP | 0.15% | -0.02% | -0.05% | -0.18% | -0.10% | -0.49% | 0.02% | |
| CAD | 0.22% | 0.01% | 0.05% | -0.12% | -0.06% | -0.44% | 0.05% | |
| AUD | 0.36% | 0.17% | 0.18% | 0.13% | 0.07% | -0.30% | 0.19% | |
| JPY | 0.28% | 0.07% | 0.11% | 0.09% | -0.07% | -0.39% | 0.11% | |
| NZD | 0.65% | 0.48% | 0.50% | 0.42% | 0.32% | 0.38% | 0.50% | |
| CHF | 0.15% | -0.04% | -0.02% | -0.03% | -0.20% | -0.13% | -0.51% |
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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