Australian Dollar recovers losses amid a lower ASX 200 index, US Retail Sales awaited

Australian Dollar moves sideways amid a lower domestic equity market.
Australia's S&P/ASX 200 Index tracks declines in the financial-linked shares, outweighing iron ore miners.
US Dollar gains ground due to higher US Treasury yields.

The Australian Dollar (AUD) witnesses a volatile session on Thursday, with a bias to gain ground on expectations of the Federal Reserve (Fed) initiating interest rate cuts in June, while the Reserve Bank of Australia (RBA) continues to suggest it may need to raise rates even further. RBA Governor Michelle Bullock recently stated that inflation in Australia is primarily "homegrown" and "demand-driven," attributable to the strength of the labor market and increasing wage inflation. The RBA does not anticipate inflation falling back to target until 2026.

Australian Dollar could have faced downward pressure due to the lower S&P/ASX 200 Index, driven by declines in the financial sector that outweigh the gains in iron ore miners. Shares linked to the Australian financial sector, including Westpac Banking, Commonwealth Bank, ANZ Group, National Australia Bank, and Macquarie Group, are leading the losses. Traders are awaiting the release of the US Core Producer Price Index (PPI) and Retail Sales data scheduled for Thursday, which could further influence market sentiment and the direction of the AUD/USD pair.

Daily Digest Market Movers: Australian Dollar faces pressure from a weaker equity market

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).
Former RBA Governor Philip Lowe stated on Wednesday that there is a two-way risk on interest rates, supporting current RBA Governor Michelle Bullock's warning that interest rates might still need to increase.
Chinese Foreign Minister Wang Yi is scheduled to meet with Australia's Foreign Affairs Minister Penny Wong in Canberra on March 20. The discussions are expected to cover various topics, including economic issues such as the removal of trade barriers, as well as more sensitive issues like human rights and regional security.
US Treasury Secretary Janet Louise Yellen remarked that it appears unlikely for interest rates to revert to levels as low as those before the Covid-19 pandemic. She also noted that the interest rate assumptions outlined in Biden’s budget plan were deemed "reasonable" and aligned with a broad spectrum of forecasts.
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 9.6%. The likelihood of a rate cut in June and July is estimated to be 67.2% and 84.2%, respectively.
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.

Technical Analysis: Australian Dollar extends gains to near 0.6630

The Australian Dollar traded near 0.6630 on Thursday. Major resistance appears at the 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. On the downside, the AUD/USD pair could find immediate support at the 23.6% Fibonacci retracement of 0.6614 level, followed by the psychological level of 0.6600. and the nine-day Exponential Moving Average (EMA) at 0.6595. Further support lies at the 38.2% Fibonacci retracement level of 0.6581.

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 weakest against the US Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		0.10%	0.08%	0.08%	0.16%	0.21%	0.06%	0.11%
EUR	-0.10%		-0.02%	-0.03%	0.06%	0.11%	-0.05%	0.01%
GBP	-0.07%	0.03%		0.00%	0.08%	0.14%	-0.02%	0.03%
CAD	-0.07%	0.05%	0.03%		0.10%	0.15%	-0.01%	0.04%
AUD	-0.16%	-0.08%	-0.10%	-0.08%		0.05%	-0.09%	-0.05%
JPY	-0.22%	-0.11%	-0.13%	-0.15%	-0.04%		-0.15%	-0.10%
NZD	-0.05%	0.06%	0.03%	0.02%	0.10%	0.16%		0.07%
CHF	-0.11%	-0.01%	-0.03%	-0.05%	0.06%	0.10%	-0.05%

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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