Australian Dollar continues its losing streak, focus on US, China data

Australian Dollar moves on a downward trajectory as US Dollar strengthens.
Australian Consumer Confidence declined by 1.3% in January against the 2.7% prior.
Fed's Bostic warned that inflation may waver in the upcoming months.
Upbeat US bond yields contributed to supporting the Greenback.
The risk aversion sentiment due to the Middle East conflict improves the US Dollar demand.

The Australian Dollar (AUD) continues its losing streak on Tuesday, which began on January 11. The AUD/USD pair faces downward pressure after the Westpac Consumer Confidence data for January showed a contraction. This development might contribute to the sentiment that there will be no further policy tightening from the Reserve Bank of Australia (RBA) in its upcoming board meeting in February.

Australia's Consumer Confidence, released by the Faculty of Economics and Commerce at the Melbourne Institute, declined by 1.3% compared to the previous increase of 2.7%. However, on Monday, the TD Securities Inflation data showed a rise in December, which might have limited the losses of the Aussie Dollar.

The US Dollar Index (DXY) began the Tuesday session with a gap-up, supported by upbeat US Treasury yields. Investors' confidence in the US Dollar (USD) appears to be returning following hawkish remarks by Atlanta Federal Reserve (Fed) President Raphael Bostic over the weekend.

According to the Financial Times, President Bostic suggested that inflation could "see-saw" if policymakers cut interest rates too soon. He warned that the descent of inflation toward the central bank's 2.0% goal was likely to slow in the months ahead.

The US Dollar gains ground on risk aversion due to the geopolitical conflict between Israel and Gaza, which has escalated to the trade disruptions in the Red Sea. Iran-backed Houthi group persistently targeted maritime vessels despite recent military strikes by the United States (US) and the United Kingdom (UK) on Houthi sites in Yemen.

Traders will closely monitor the US NY Empire State Manufacturing Index for January, as well as a speech by the Federal Reserve's Waller later on Tuesday. Additionally, Chinese Gross Domestic Product (GDP) and Retail Sales data are scheduled for Wednesday.

Daily Digest Market Movers: Australian Dollar loses ground as the US Dollar improves

Australian TD Securities inflation increased by 5.2% YoY in December from 4.4% in November.
Australia's job advertisements improved by 0.1% in December, swinging from the previous decline of 4.6%.
People's Bank of China (PBoC) maintained the rate on its medium-term facility steady at 2.5%, increasing the expectation that the Reserve Requirement Ratio will be reduced the following month.
Chinese Consumer Price Index (YoY) decreased by 0.3% in December, against the expected 0.4% decline. The monthly Consumer Price Index eased to 0.1%, compared to the market expectation of 0.2%. The yearly Producer Price Index fell by 2.7%, slightly exceeding the expected decline of 2.6%.
Barclays revised its forecast for the first Federal Reserve (Fed) rate cut on Friday, moving it up to March from June. In a note released on Friday, Barclays analysts expressed their expectation for the Federal Open Market Committee (FOMC) to reduce the Fed Funds rate by 25 basis points at the March meeting.
US Bureau of Labor Statistics reported that the December Producer Price Index (PPI) figure was 1.0% year-on-year, compared to the previous reading of 0.8%. The Core PPI YoY arrived at 1.8%, down from 2.0% in November. Monthly, the headline and Core PPI indices remained flat at -0.1% and 0.0%, respectively.
US Bureau of Labor Statistics reported that the Consumer Price Index (CPI) surged to 3.4% YoY in December, exceeding both November's 3.1% and the anticipated market figure of 3.2%. The monthly CPI growth for December showed a 0.3% increase, surpassing the market analysts' estimated projection of 0.2%. The annual Core CPI stood at 3.9%, a slight decrease from November's 4.0%, while the monthly figure remained steady at 0.3%, in line with expectations.

Technical Analysis: Australian Dollar moves below the major level at 0.6650

The Australian Dollar trades near 0.6620 on Tuesday, positioned above psychological support at 0.6600 following the 50% retracement level at 0.6566 and major support at 0.6550. On the upside, the major barrier appears at the 0.6650 level following the 14-day Exponential Moving Average (EMA) at 0.6699 aligned with the psychological level at 0.6700.

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		0.23%	0.30%	0.28%	0.43%	0.18%	0.36%	0.39%
EUR	-0.23%		0.07%	0.06%	0.20%	-0.05%	0.12%	0.15%
GBP	-0.31%	-0.08%		-0.05%	0.15%	-0.15%	0.01%	0.05%
CAD	-0.28%	-0.05%	0.03%		0.15%	-0.10%	0.07%	0.10%
AUD	-0.44%	-0.19%	-0.14%	-0.15%		-0.27%	-0.09%	-0.05%
JPY	-0.17%	0.05%	0.13%	0.10%	0.24%		0.14%	0.18%
NZD	-0.38%	-0.09%	-0.06%	-0.06%	0.08%	-0.18%		0.04%
CHF	-0.37%	-0.15%	-0.05%	-0.09%	0.05%	-0.21%	-0.04%

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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