- Australian Dollar faced challenges due to risk-off sentiment and softer commodity prices.
- Australian PMI data indicated a contraction in business activities.
- US ADP Employment Change added 164K new positions against the 101K prior.
- Initial Jobless Claims reduced to 202K from the previous reading of 220K.
The Australian Dollar (AUD) moves sideways near a psychological level at 0.6700 on Friday. The AUD/USD pair is facing downward pressure, even with the US Dollar (USD) lacking a clear direction and an improvement in China's Caixin Services PMI in December. The weakened market sentiment and a widespread decline in commodity prices are both playing a role in the Aussie Dollar's weakness.
Australia's latest Judo Bank Purchasing Managers Index (PMI) data indicated a contraction in business activities across both the services and manufacturing sectors, further highlighting the vulnerability of the Australian Dollar. The Services PMI specifically showed the most rapid contraction in services since the third quarter of 2021. However, Matthew De Pasquale, Economist at Judo Bank, proposes that the deceleration in the Australian economy is not gaining momentum.
The US Dollar Index (DXY) holds a steady course, exhibiting a slight inclination towards positive sentiment and potential gains. Nevertheless, the retracement of recent advances in United States (US) Treasury yields might put some pressure on the Greenback. Furthermore, the optimistic employment data unveiled on Thursday could be bolstering support for the US Dollar.
US ADP Employment Change surged in December, adding 164K new positions, surpassing both the previous figure of 101K and the market expectation of 115K. 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. However, the 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.
Traders await more crucial data from the US employment market including Average Hourly Earnings and Nonfarm Payrolls (NFP) data for December. Additionally, the ISM Services PMI is poised to unveil the current conditions within the US service sector.
Daily Digest Market Movers: Australian Dollar faces challenges on improved 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.
- RBA's internal documents revealed a slip in domestic tourism demand. Additionally, consumers are reported to be trading down to more affordable products or reducing their overall purchases due to cost-of-living pressures. However, the documents suggest that private sector wage growth has stabilized at around 4.0%.
- Australian Prime Minister Anthony Albanese 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 inflation pressure.
- China Caixin Services PMI rose to 52.9 in December, exceeding the 51.6 expected and 51.5 prior.
- The December minutes from the Federal Open Market Committee (FOMC) suggest that participants think the policy rate has either reached or is close to its highest point in the current tightening cycle. However, they emphasized that the specific trajectory of the policy would hinge on the evolving economic conditions.
- US ISM Manufacturing PMI increased to 47.4 in December from the previous reading of 46.7, surpassing the market consensus of 47.1.
- US JOLTS Job Openings contracted to 8.79 million, falling short of the expected figure of 8.85 million in November.
- US ISM Manufacturing Employment Index improved to 48.1 in December from 45.8 in November.
- US S&P Global Manufacturing PMI posted a lower-than-expected figure of 47.9, diverging from the anticipated consistency at 48.2.
Technical Analysis: Australian Dollar stays around the psychological level at 0.6700
The Australian Dollar trades near 0.6710 on Friday, with a significant resistance level at 0.6750 aligned with the nine-day Exponential Moving Average (EMA) at 0.6751. 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 could act as a potential support. A break below the psychological level could push the AUD/USD pair to navigate the major support at 0.6650 followed by 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 weakest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.13% | 0.04% | 0.00% | -0.03% | 0.19% | -0.03% | 0.08% | |
| EUR | -0.17% | -0.11% | -0.12% | -0.18% | 0.03% | -0.18% | -0.07% | |
| GBP | -0.04% | 0.10% | -0.01% | -0.05% | 0.16% | -0.07% | 0.04% | |
| CAD | -0.04% | 0.09% | 0.00% | -0.07% | 0.15% | -0.07% | 0.04% | |
| AUD | 0.00% | 0.14% | 0.05% | 0.01% | 0.19% | -0.02% | 0.08% | |
| JPY | -0.20% | -0.03% | -0.13% | -0.15% | -0.19% | -0.20% | -0.10% | |
| NZD | 0.03% | 0.18% | 0.07% | 0.03% | 0.02% | 0.23% | 0.12% | |
| CHF | -0.10% | 0.04% | -0.04% | -0.06% | -0.12% | 0.10% | -0.11% |
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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