Australian Dollar hovers above a psychological level ahead of Aussie Retail Sales

Australian Dollar loses ground as the US Dollar continues to gain ground.
Australian Retail Sales data is anticipated to increase by 1.2% against the previous decline of 0.2%.
Chinese wealth manager Zhongzhi has filed for bankruptcy liquidation.
US Nonfarm Payrolls rose to 216K from the previous figure of 173K.
ISM Services PMI eased at 50.6 against the expected 52.6 and 52.7 prior.

The Australian Dollar (AUD) trades lower against the US Dollar (USD) on Monday. The AUD/USD pair experienced a volatile session on Friday, which was influenced by mixed economic data from the United States (US). Despite a robust US employment report, concerns linger over weaker business activity in the services sector, prompting investors to approach the economy's outlook with caution.

Australia's upcoming Retail Sales (MoM) data for November is due on Tuesday, expected to show a 1.2% increase from October's 0.2% decline, could influence the Reserve Bank of Australia (RBA) policymakers to maintain elevated interest rates for an extended period. However, the recent Judo Bank Purchasing Managers Index (PMI) data revealed a contraction in business activities in both services and manufacturing sectors, which might have underscored the vulnerability of the Australian Dollar.

Chinese wealth manager Zhongzhi Enterprise Group has filed for bankruptcy liquidation, facing a staggering $64 billion in liabilities. As a major player in China's $3 trillion shadow banking sector, its financial struggles could indicate contagion from the broader property debt crisis into the financial sector. This event will likely negatively impact the Aussie Dollar (AUD), given the close economic ties between China and Australia.

The US Dollar Index (DXY) moves sideways with a negative bias, possibly influenced by the decline in the short-term yield on the 2-year US Treasury bond. On Friday, the US Dollar lurched with fluctuations between gains and losses, which can be attributed to mixed US data.

US Bureau of Labor Statistics indicated a positive development in the job market. Nonfarm Payrolls rose to 216K in December, showing an improvement from the 173K reported in November. This figure surpassed the market expectation, which anticipated a rise of 170K. Furthermore, Average Hourly Earnings (YoY) improved to 4.1% from 4.0% prior. Meanwhile, the monthly index remained consistent at 0.4% against the expected decline of 0.3%.

The Institute for Supply Management (ISM) revealed the services sector slowed in December, as the Services Purchasing Managers Index (PMI) came in at 50.6 against the expected 52.6 and 52.7 prior. While the Services Employment Index reduced to 43.3 from the previous reading of 50.7.

Thomas Barkin, the President of the Federal Reserve Bank of Richmond, provided insights into the US labor market, noting that it is currently experiencing a steady softening pattern. His view suggests that a reacceleration of the labor market seems unlikely at this juncture.

The president of the Federal Reserve Bank of Dallas, Lorie K. Logan, provided insights on Saturday, suggesting that a rate hike should not be ruled out given the recent easing in financial conditions. She emphasized the importance of avoiding premature easing, which could stimulate demand. Maintaining sufficiently tight financial conditions is seen as crucial to managing the risk of inflation picking back up and potentially reversing progress.

Daily Digest Market Movers: Australian Dollar improves on subdued US Dollar

Australia Judo Bank Services PMI reported a reading of 47.1, falling short of market expectations that it would remain consistent at 47.6. The Composite PMI decreased to 46.9 from the previous figure of 47.4.
Australia’s Judo Bank Manufacturing PMI indicated a modest contraction in manufacturing activity, declining to 47.6 in December from the previous reading of 47.8.
China Caixin Services PMI rose to 52.9 in December, exceeding the 51.6 expected and 51.5 prior.
US ADP Employment Change added 164K new positions, surpassing the previous figure of 101K and the market expectation of 115K.
US Initial Jobless Claims for the week ending on December 29 displayed positive signs for the labor market, decreasing to 202K from the previous 220K, beating the anticipated 216K.
US S&P Global Composite PMI for December reported a minor dip in business activities, registering a reading of 50.9 compared to the market consensus of a steady 51.0.

Technical Analysis: Australian Dollar hovers near the 0.6700 psychological level

The Australian Dollar trades near 0.6700 on Monday. It faces a barrier at the nine-day Exponential Moving Average (EMA) of 0.6741 before the major resistance at the 0.6750 level. A successful breakthrough above the latter could pave the way for the AUD/USD pair to challenge the psychological barrier at 0.6800. On the downside, the psychological level at 0.6700 acts as an immediate support. A break below the psychological support could push the AUD/USD pair to retest the major support at 0.6650 and the 38.2% Fibonacci retracement level at 0.6637.

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 Japanese Yen.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.05%	0.00%	0.03%	0.11%	-0.38%	0.04%	0.06%
EUR	0.05%		0.06%	0.10%	0.18%	-0.31%	0.11%	0.11%
GBP	0.00%	-0.06%		0.04%	0.12%	-0.38%	0.04%	0.03%
CAD	-0.03%	-0.09%	-0.03%		0.08%	-0.39%	0.01%	-0.03%
AUD	-0.11%	-0.20%	-0.11%	-0.08%		-0.47%	-0.07%	-0.09%
JPY	0.34%	0.32%	0.37%	0.45%	0.52%		0.42%	0.39%
NZD	-0.05%	-0.11%	-0.05%	0.01%	0.07%	-0.42%		0.01%
CHF	-0.04%	-0.10%	-0.04%	0.00%	0.08%	-0.41%	0.01%

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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