- Australian Dollar faced challenges as investors returned to the US Dollar.
- Australian economic data will be crucial for RBA’s policy-tightening decision.
- RBA internal documents mentioned pressure on domestic tourism and the cost of living.
- A Chinese official has urged Taiwan's people to make a "correct choice" in the January 13 presidential and parliamentary elections.
- Traders reconsider the possibility of rate cuts by the Fed in the first quarter of 2024.
The Australian Dollar (AUD) grapples to maintain its position above a major level at 0.6750 on Wednesday amid a tepid US Dollar (USD). The commodity-linked Aussie Dollar (AUD) faces downward pressure following the indications of sluggish global growth at the close of 2024, prompting investors to turn back to the USD. However, market players are now re-evaluating their aggressive bets on imminent rate cuts by the Federal Reserve (Fed) anytime soon. However, the positive surprise in China’s manufacturing data might have potentially limited the losses of the AUD.
Australia's economic data will play a pivotal role, especially with the Reserve Bank of Australia (RBA) emphasizing the significance of scrutinizing additional data to assess risk balance before making decisions on future interest rates. The recent release of the Judo Bank Manufacturing PMI on Tuesday indicated a softening in economic activity. The upcoming release of Composite and Services PMI data on Friday is highly anticipated to fall below the 50 reading, suggesting a potential contraction in these sectors.
The Australian Dollar could exhibit resilience, buoyed by persistent inflation and housing prices. The market expectations lean towards the RBA refraining from monetary policy tightening in the upcoming February meeting, which could contribute to the AUD's stability.
RBA's internal documents, as reported by Bloomberg, highlight the impact of rising interest rates on households and businesses. The documents reveal a slip in domestic tourism demand from previously high levels, indicating a response to the increased cost of borrowing. Additionally, consumers are reported to be trading down to more affordable products or reducing their overall purchases due to cost-of-living pressures. On a somewhat positive note, the documents suggest that private sector wage growth has stabilized at around 4.0%, providing a snapshot of the economic dynamics within Australia. Moreover, Australian Prime Minister Anthony Albanese, in a press conference, announced that he has directed Treasury and Finance to explore measures that can alleviate the financial burden on families in terms of cost of living without exerting additional pressure on inflation.
The characterization of the January 13 presidential and parliamentary elections by China as a choice between war and peace could add to the geopolitical tensions in the region. A senior Chinese official has urged Taiwan's people to make a "correct choice," hinting at the potential consequences based on election outcomes. Any escalation of tensions between China and Taiwan has the potential to impact risk sentiment and exert pressure on currency pairs like AUD/USD.
The US Dollar Index (DXY) could persist in its upward trajectory, propelled by enhanced US Treasury yields. However, the S&P Global Manufacturing PMI posted a lower-than-expected figure of 47.9, diverging from the anticipated consistency at 48.2.
Investors will likely observe US data on Wednesday, including the December ISM Manufacturing PMI, November JOLTS Job Openings, and the Federal Open Market Committee (FOMC) Minutes.
The FOMC Minutes could hold relevance following Chairman Jerome Powell's mention of potential rate cuts in the aftermath of the latest Federal Reserve (Fed) monetary policy decision.
Daily Digest Market Movers: Australian Dollar faces challenges on improved US Dollar Sentiment
- 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’s NBS Manufacturing PMI for December reduced to the reading of 49.0 from the previous 49.4 figure. The market expectation was an increase to 49.5. While NBS Non-Manufacturing PMI improved to 50.4 from the 50.2 prior but fell short of the 50.5 expected.
- China's Caixin Manufacturing Purchasing Managers Index (PMI) improved to a reading of 50.8, surpassing both the market consensus of 50.4 and the previous reading of 50.7.
- The Chicago Purchasing Managers Index reduced to 46.9 in December from the previous 55.8.
Technical Analysis: Australian Dollar stays above the major support at 0.6750
The Australian Dollar trades near 0.6760 on Wednesday. The psychological level at 0.6800 could act as a key resistance following the major level at 0.6850. On the downside, the AUD/USD pair could find a key support at the 0.6750 major level followed by the 21-day Exponential Moving Average (EMA) at 0.6733 and the 23.6% Fibonacci retracement level at 0.6725. A breach below the latter could put pressure on the AUD/USD pair to navigate the psychological support level at 0.6700 following the 38.2% Fibonacci retracement level at 0.6637.
AUD/USD: Daily Chart
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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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.18% | -0.13% | 0.04% | 0.05% | 0.15% | -0.32% | 0.01% | |
| EUR | 0.19% | 0.06% | 0.21% | 0.24% | 0.33% | -0.15% | 0.20% | |
| GBP | 0.11% | -0.06% | 0.16% | 0.17% | 0.25% | -0.21% | 0.12% | |
| CAD | -0.04% | -0.22% | -0.17% | 0.00% | 0.11% | -0.37% | -0.02% | |
| AUD | -0.05% | -0.21% | -0.17% | -0.01% | 0.11% | -0.38% | -0.03% | |
| JPY | -0.15% | -0.36% | -0.29% | -0.11% | -0.11% | -0.50% | -0.13% | |
| NZD | 0.32% | 0.15% | 0.20% | 0.37% | 0.38% | 0.48% | 0.34% | |
| CHF | -0.01% | -0.19% | -0.15% | 0.01% | 0.03% | 0.13% | -0.35% |
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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