Australian Dollar hovers below a major level, focus on US labor, housing data

Australian Dollar continues to reach fresh highs on the subdued US Dollar.
Australian robust economic conditions influence the RBA to maintain its hawkish stance.
China's NDRC Chairman, Zheng Shanjie mentioned that China will strive to expand domestic demand.
Investors await US data releases to gain further impetus on the Fed’s stance.

The Australian Dollar (AUD) continues to gain ground on Thursday as the US Dollar (USD) fell below the 101.00 mark, influenced by subdued US Treasury yields. The AUD/USD pair receives additional upward support from improved risk appetite, with investors speculating on a dovish stance from the Federal Reserve (Fed) regarding interest rates in early 2024.

Australia's inflation and housing prices are displaying resilience, potentially influencing the Reserve Bank of Australia (RBA) to maintain its hawkish stance. The latest RBA forecasts are nearing the upper boundary of the 2-3% inflation target by the end of the year 2025. In its recent Meeting Minutes, the RBA emphasized the importance of carefully examining additional data to assess the balance of risks before making future interest rate decisions. There is widespread anticipation that the RBA will refrain from a rate cut in February's policy meeting.

China's National Development and Reform Commission's (NDRC) Chairman, Zheng Shanjie, has expressed the country's commitment to implementing familiar policy measures. In a meeting held on Tuesday, Zheng mentioned that China will strive to expand domestic demand, ensuring a speedy economic recovery, and promoting stable growth.

The US Dollar Index (DXY) experiences continued weakness as the market anticipates potential rate cuts by the Federal Reserve (Fed) in the first quarter of the upcoming year. This expectation stems from the Fed's policy pivot in December, where the dot plot of rate expectations suggested the possibility of up to three cuts, amounting to a total of 75 basis points in rate reductions by the end of 2024.

US Richmond Fed Manufacturing Index recorded a significant decline of 11 points in December, exceeding the market's expectation of a 7-point drop. This comes after a 5-point decrease in November. The unexpected contraction in the manufacturing index may impact market perceptions of economic conditions. Investors will likely turn their attention to Thursday's Initial Jobless Claims and Pending Home Sales releases.

Daily Digest Market Movers: Australian Dollar extends gains on improved risk appetite

RBA Private Sector Credit (MoM) demonstrated a 0.4% increase in November, surpassing the previous rise of 0.3%. However, the Year-over-Year data indicated a decrease of 4.7%, compared to the previous 4.8% rise.
RBA highlighted the examination of additional data to assess the balance of risks before deciding on future interest rates in its recent Meeting Minutes.
China's year-on-year Industrial Profits for January to November registered a decline of 4.4%, indicating a slowdown and highlighting the need for additional policy support from Beijing to bolster growth in the world's second-largest economy.
Former Dallas Federal Reserve President Robert Kaplan emphasized that he believed that the Federal Reserve is cautious to avoid a scenario where the monetary tightening becomes overly restrictive.
US Housing Price Index (MoM) contracted to 0.3% from 0.7% prior, falling short of 0.5% expectations in October.
US Bureau of Economic Analysis (BEA) reveals that the Core Personal Consumption Expenditures - Price Index (YoY) grew at 3.2% in November, falling short of the 3.3% expectations and 3.4% prior. Meanwhile, the MoM data showed consistency at 0.1% against the market expectation of 0.2%.
US Gross Domestic Product Annualized grew at a rate of 4.9% in Q3, slightly below the expected consistency of 5.2%.

Technical Analysis: Australian Dollar moves below 0.6850 major level

The Australian Dollar hovers around 0.6850 on Thursday. The prevailing bullish sentiment suggests a potential for the AUD/USD pair to approach the key resistance at the psychological level of 0.6900. On the downside, support levels are identifiable at the seven-day Exponential Moving Average (EMA) at 0.6810 before the psychological support at 0.6800. A breach below this crucial support zone could potentially lead the AUD/USD pair to navigate the 23.6% Fibonacci retracement level at 0.6729.

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		-0.09%	-0.15%	-0.07%	0.07%	-0.42%	0.02%	-0.35%
EUR	0.09%		-0.06%	0.01%	0.16%	-0.34%	0.10%	-0.27%
GBP	0.16%	0.06%		0.08%	0.20%	-0.27%	0.16%	-0.21%
CAD	0.08%	-0.01%	-0.04%		0.15%	-0.35%	0.10%	-0.28%
AUD	-0.04%	-0.16%	-0.20%	-0.14%		-0.50%	-0.05%	-0.43%
JPY	0.41%	0.33%	0.27%	0.32%	0.46%		0.45%	0.05%
NZD	-0.02%	-0.10%	-0.16%	-0.07%	0.04%	-0.42%		-0.37%
CHF	0.37%	0.28%	0.21%	0.28%	0.44%	-0.07%	0.37%

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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