Australian Dollar receives upward support from higher ASX 200 amid a firmer US Dollar

Australian Dollar exhibits sideways movement with a bias to recover recent losses.
Australia's S&P/ASX 200 Index mirrors the gains seen on Wall Street overnight, avoiding the upbeat US Inflation data.
US CPI YoY and MoM rose by 3.2% and 0.4%, respectively, in February.

The Australian Dollar (AUD) consolidates, with a sentiment indicating a potential to recover recent losses on Wednesday. Despite the S&P/ASX 200 Index rising for the second consecutive day, tracking gains on Wall Street overnight, lower commodity prices could exert pressure on the Aussie Dollar. Investor sentiment remains cautiously optimistic following the release of upbeat Consumer Price Index (CPI) data from the United States (US).

Australian Dollar suffered losses against the US Dollar (USD) on Tuesday, driven by a stronger-than-expected CPI report that dampened hopes of a near-term rate cut by the Federal Reserve (Fed). This strengthened the Greenback, potentially creating headwinds for the AUD/USD pair. Traders are likely to shift their focus to the US Core Producer Price Index (PPI) and Retail Sales data scheduled for release on Thursday.

Daily Digest Market Movers: Australian Dollar remains subdued on risk-off sentiment

Australia's NAB Business Confidence Index decreased to 0 in February, from 1 in the previous month.
Australia's NAB Business Conditions Index improved to 10 from the previous reading of 7 (revised from 6).
Iron ore futures have declined due to concerns about a decrease in demand from China. Additionally, there is a rise in maintenance activities on blast furnaces among mills this week, hinting at a potential decline in hot metal output.
Sarah Hunter, Assistant Governor (Economics) at the Reserve Bank of Australia (RBA), addressed a panel at the AFR Business Summit on Tuesday, discussing fourth-quarter GDP in line with forecasts. Hunter mentioned that recent inflation data also matched expectations, with inflation remaining the primary hindrance to household consumption.
CIBC discusses the latest US CPI data for February, noting that while the report exceeds consensus expectations, it does not warrant alarm regarding inflation trends.
According to the CME FedWatch Tool, the probability of a rate cut in March has decreased to 1.0%, while in May it stands at 15.6%. In June, the likelihood of a rate cut is estimated to be 66.6%.
US CPI (YoY) came in at 3.2% in February, exceeding estimates of 3.1% and above January’s 3.1%. The monthly index printed 0.4% as expected above 0.3% prior.
US Core CPI increased by 3.8% year-over-year, above the expected 3.7% but below the previous 3.9% reading. While MoM remained consistent at 0.4% against the expected 0.3%.
The Monthly Budget Statement printed a deficit of $296 billion in February, below the expected deficit of $299 billion. However, it has sharply increased from the previous deficit of $22 billion.
US Nonfarm Payrolls increased by 275K in February, surpassing January's figure of 229K and beating expectations of 200K.
US Average Hourly Earnings (YoY) grew by 4.3%, falling slightly below February’s estimated and previous reading of 4.4%. Monthly, there was an increase of 0.1%, which was lower than the anticipated 0.3% and the previous month's 0.5%.

Technical Analysis: Australian Dollar tests the psychological support of 0.6600

The Australian Dollar remains positioned above the psychological support of 0.6600 on Wednesday. A breach below this level might propel the AUD/USD pair toward the vicinity of the nine-day Exponential Moving Average (EMA) at 0.6584, coinciding with the 38.2% Fibonacci retracement level of 0.6581. To the upside, the AUD/USD pair could encounter significant resistance at the major level of 0.6650, followed by the previous week’s high of 0.6667. A breakthrough above the latter could provide further momentum for the pair to challenge the psychological barrier of the 0.6700 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 Swiss Franc.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		0.04%	0.03%	0.02%	-0.07%	-0.01%	-0.18%	0.07%
EUR	-0.04%		-0.01%	-0.02%	-0.12%	-0.06%	-0.24%	0.02%
GBP	-0.04%	0.01%		-0.01%	-0.11%	-0.05%	-0.23%	0.03%
CAD	-0.03%	0.01%	0.01%		-0.10%	-0.04%	-0.21%	0.04%
AUD	0.08%	0.12%	0.11%	0.11%		0.07%	-0.11%	0.12%
JPY	0.03%	0.09%	0.08%	0.07%	-0.01%		-0.18%	0.08%
NZD	0.19%	0.23%	0.23%	0.21%	0.11%	0.18%		0.25%
CHF	-0.06%	-0.02%	-0.03%	-0.03%	-0.14%	-0.08%	-0.26%

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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