Australian Dollar struggles to gain ground amid a stable US Dollar, focus on US GDP (Q4)

Australian Dollar loses ground as the US Dollar attempts to recover recent losses.
Australia's inflation is likely to stay above the RBA's target range of 2.0–3.0%.
PBoC may cut the Medium-term Lending Facility (MLF) rate in the current quarter.
US Dollar faced downward pressure despite the upbeat US PMI data.
US GDP Annualized (Q4) is expected to print a reading of 2.0% against 4.9% prior.

The Australian Dollar (AUD) loses its ground for the second successive day on Thursday. The AUD/USD pair encountered downward pressure following the release of positive S&P Global Purchasing Managers Index (PMI) data from the United States (US) on Wednesday. The upbeat data could decrease the probability of rate cuts by the Federal Reserve (Fed) in March, prompting a decline in the AUD/USD pair. Additionally, according to the CME's FedWatch tool, market-wide bets on a March rate cut from the Fed have now dropped to below 40%, a significant decline from around 80% recorded just a month ago.

Australia’s Dollar experienced a decline, despite the release of improved preliminary Purchasing Managers Index (PMI) data from Australia on Wednesday. The Reserve Bank of Australia's (RBA) Bulletin indicates that over the past six months, businesses have generally anticipated a moderation in their price growth, with the expectation that, on average, prices will stay above the RBA's inflation target range of 2.0–3.0%. The Bulletin also notes that slower growth in demand and increased competition are anticipated factors that will contribute to a further deceleration in the growth of firms' prices in the upcoming quarters.

Chinese financial media reported that the People's Bank of China (PBoC) may cut the Medium-term Lending Facility (MLF) rate in the current quarter. The announcement follows the recent statement by PBoC Governor Pan Gongsheng, who revealed that the Bank would reduce the Required Reserve Ratio (RRR) by 50 basis points starting from February 5th. The RRR cut is part of the central bank's efforts to inject liquidity into the economy. Despite the reduction, RRR levels are still considered relatively high. The move is expected to release approximately CNY 1 trillion of extra available funds into the Chinese economy, providing additional liquidity to support economic activities and potentially ease financial conditions, which in turn, supports the Aussie Dollar, given the fact of close trade relations between Australia and China.

The US Dollar Index (DXY) makes efforts to recover from recent losses despite the downbeat US Treasury yields. However, the US Dollar (USD) faces challenges due to a risk-on market sentiment ahead of the Federal Reserve's (Fed) interest rate decision on January 31. Investors will likely watch the preliminary US Gross Domestic Product Annualized scheduled for release on Thursday, which is anticipated to print a reading of 2.0% in the fourth quarter as compared to the previous reading of 4.9%. This data will provide insights into the overall economic performance and could influence market expectations regarding the Fed's monetary policy stance.

Daily Digest Market Movers: Australian Dollar declines after improved US PMI

Australia's Manufacturing PMI increased from 47.6 to 50.3, showcasing improvement. Services PMI also saw an uptick, rising from 47.1 to 47.9. The Composite PMI registered an increase, reaching 48.1 compared to December's 46.9.
Australia’s Westpac Leading Index (MoM) declined by 0.03% in December against November’s growth of 0.07%.
National Australia Bank's Business Conditions inched down to the reading of 7 in December from 9 prior.
National Australia Bank's Business Confidence improves to -1 from the previous figure of -9.
Australia’s Consumer Inflation Expectations remained steady at 4.5% in January.
The Chair of Australia's sovereign wealth fund Peter Costello commented that inflation in Australia is showing early signs of moderation. However, Costello emphasizes that there is still a considerable distance to cover to bring prices back within the RBA's target band.
The People's Bank of China keeps its Loan Prime Rate (LPR) steady for both the one-year and five-year terms. The rate remains at 3.45% for the one year and 4.20% for the five years.
US S&P Global Manufacturing PMI climbed to an 11-month high of 50.3 in January against the forecast of remaining consistent at 47.9.
US Services PMI rose to 52.9 against the expected reading of 51 and 51.4 prior. While Composite PMI increased to 52.3 from the previous reading of 50.9.
US Conference Board has reported a slight improvement in the Leading Economic Index for December, moving from -0.5% in November to -0.1% in December. This surpassed expectations for an improvement to -0.3%.
The preliminary US Michigan Consumer Sentiment Index rose to 78.8 in January from 69.7 prior, exceeding the expected figure of 70.

Technical Analysis: Australian Dollar maintains its position below 0.6600

The Australian Dollar trades around 0.6570 on Thursday, with immediate resistance seen at the psychological level of 0.6600, which aligns with the 23.6% Fibonacci retracement level at 0.6606, followed by the 14-day Exponential Moving Average (EMA) at 0.6617. A decisive move above this resistance zone could potentially propel the AUD/USD pair toward the major barrier at 0.6650. On the downside, the pair might revisit the weekly low at 0.6551, coinciding with the significant level at 0.6550. If this support is breached, the pair could face further downside pressure, potentially retesting the monthly low at 0.6524.

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 New Zealand Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		-0.04%	-0.02%	-0.05%	-0.07%	0.11%	-0.06%	0.07%
EUR	0.04%		0.02%	-0.01%	-0.04%	0.15%	-0.03%	0.12%
GBP	0.03%	-0.01%		-0.01%	-0.05%	0.14%	-0.04%	0.11%
CAD	0.05%	0.01%	0.03%		-0.03%	0.16%	-0.03%	0.13%
AUD	0.09%	0.03%	0.05%	0.02%		0.20%	0.01%	0.14%
JPY	-0.11%	-0.16%	-0.13%	-0.17%	-0.20%		-0.19%	-0.04%
NZD	0.11%	0.03%	0.05%	0.02%	0.00%	0.19%		0.14%
CHF	-0.07%	-0.12%	-0.10%	-0.12%	-0.14%	0.05%	-0.14%

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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