Australian Dollar pulls back from a five month high ahead of US Retail Sales
- Australian Dollar surges to four-month highs as US Dollar loses ground on dovish Fed outlook.
- Australia’s Consumer Expectations reduced to 4.5% and Employment Change rose substantially to 61.5K.
- Fed kept interest rates unchanged at 5.5% and investors expect three rate cuts for 2024.
The Australian Dollar (AUD) extends its gains on the second consecutive day on Thursday and delivers its strongest performance in four months after moderate employment data release from Australia. The AUD/USD pair gained ground, benefiting from a substantial decline in the US Dollar (USD) following the Federal Reserve (Fed) meeting. In line with expectations, the Fed opted to maintain interest rates at 5.5%. Markets are now projecting three rate cuts for 2024. Fed Chair Jerome Powell adopted a dovish stance, contributing to the decline in Treasury bond yields. He refrained from declaring victory on inflation.
Australia’s Consumer Inflation Expectations for December eased at 4.5% against the previous figures of 4.9%. The seasonally adjusted Employment Change (Nov) improved substantially to 61.5K compared to the expected 11.0K. However, Unemployment Rate rose to 3.9% from 3.7% previously.
The US Dollar Index (DXY) receives downward pressure after downbeat Producer Price Index (PPI) data for November was released on Wednesday. US Bureau of Labor Statistics revealed that the PPI (YoY) reduced to the growth of 0.9% against the expected growth of 1.0%, while the Core PPI came in at 2.0% against the 2.2% expected. Market participants will likely observe the release of US Retail Sales data on Thursday.
Daily Digest Market Movers: Australian Dollar receives upward support after Fed policy decision
- ANZ-Roy Morgan Australian Consumer Confidence weekly survey rose to 80.8 from the previous week's 76.4.
- Westpac Consumer Confidence for December showed improvement at 2.7% from the previous decline of 2.6%.
- Australian government anticipates a significantly improved budget bottom line this year as revenues outpace forecasts. In the mid-year economic and fiscal outlook (MYEFO) presented by Labor Treasurer Jim Chalmers, a budget deficit of just AUD 1.1 billion (USD 721.4 million) in the year to end June 2024 is projected, down from the AUD 13.9 billion forecasted back in May.
- US Bureau of Labor Statistics revealed that the US Consumer Price Index (CPI) for November rose by 0.1% month-on-month and 3.1% year-on-year. Both figures aligned with market consensus, indicating that inflation levels met expectations.
- US Core CPI, which excludes volatile food and energy prices, climbed by 0.3% MoM and 4.0% YoY, in line with expectations.
Technical Analysis: Australian Dollar surges to psychological level at 0.6700
The Australian Dollar trades higher around the psychological level at 0.6700 on Thursday. A potential upward move from this point could propel the AUD/USD pair towards August's high at 0.6723, followed by the significant level at 0.6750. On the downside, the key support at 0.6650 holds significance, along with the 23.6% Fibonacci retracement at 0.6503, aligning with the psychological support at 0.6500. A decisive breach below this support level might exert downward pressure on the AUD/USD pair, with the potential to navigate towards the region around the 21-day Exponential Moving Average (EMA) at 0.6577.
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 | -0.03% | 0.01% | -0.23% | -0.58% | -0.51% | -0.43% | 0.04% | |
| EUR | 0.04% | 0.05% | -0.19% | -0.56% | -0.47% | -0.41% | 0.07% | |
| GBP | -0.02% | -0.04% | -0.24% | -0.61% | -0.57% | -0.46% | 0.01% | |
| CAD | 0.24% | 0.19% | 0.23% | -0.36% | -0.30% | -0.23% | 0.26% | |
| AUD | 0.60% | 0.56% | 0.59% | 0.37% | 0.08% | 0.14% | 0.62% | |
| JPY | 0.50% | 0.50% | 0.56% | 0.30% | -0.08% | 0.11% | 0.55% | |
| NZD | 0.46% | 0.40% | 0.44% | 0.21% | -0.15% | -0.07% | 0.46% | |
| CHF | -0.04% | -0.07% | -0.03% | -0.25% | -0.63% | -0.55% | -0.49% |
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.
Author
Akhtar Faruqui
FXStreet
Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.
