- Australian Dollar trades higher on improved risk appetite and hawkish RBA.
- Australian central bank will observe data to evaluate the risks before making future policy decisions.
- US Dollar faces negative sentiment due to speculation on the Fed’s rate cuts in early 2024.
The Australian Dollar (AUD) retraces its recent losses on Thursday after pulling back from a five-month high at 0.6779. The US Dollar (USD) gained ground against the Aussie Dollar in the previous session on the back of improved economic data from the United States (US). Consequently, the AUD/USD pair snapped its five-day winning streak.
Australia's central bank takes a hawkish stance, as indicated in the Meeting Minutes on Tuesday, providing a boost to the Australian Dollar. The Reserve Bank of Australia (RBA) is expected to carefully scrutinize additional data to evaluate the balance of risks before making future interest rate decisions. According to the World Interest Rate Probability Tool (WIRP), there's widespread anticipation that the RBA will refrain from a rate cut in February's policy meeting.
The US Dollar Index (DXY) loses ground on Thursday despite improved US Treasury yields. Additionally, the dovish sentiment surrounding the US Federal Reserve’s (Fed) interest rate trajectory in early 2024 put pressure on the US Dollar. However, Fed officials discouraged premature speculations and urged a cautious approach.
US Existing Home Sales Change showed a monthly rate increase of 0.8% in November, a notable turnaround from the previous decline of 4.1%. CB Consumer Confidence experienced substantial growth in December, marking the most significant increase since early 2021, rising from 101.0 to 110.07. Market participants will likely observe US Gross Domestic Product Annualized (Q3), Initial Jobless Claims, and Philadelphia Fed Manufacturing Survey on Thursday.
Daily Digest Market Movers: Australian Dollar remains bullish on improved risk sentiment
- Westpac Leading Index (MoM) for November improved by 0.01% against the previous reading of flat 0.0%.
- Australia’s preliminary Judo Bank Composite PMI improved to 47.4 from the previous reading of 46.2.
- The Manufacturing PMI registered 47.8, a slight increase from the prior figure of 47.7.
- The Services PMI grew to 47.6 compared to the previous reading of 46.0.
- Australia’s Consumer Inflation Expectations for December eased at 4.5% against the previous figures of 4.9%.
- The People’s Bank of China (PBoC) released its Interest Rate Decision on Wednesday. The Monetary Policy Committee (MPC) kept the benchmark rate unchanged at 3.45%.
- New York Fed President John Williams opposed the speculation surrounding a potential rate cut in March.
- San Francisco Fed President Mary Daly called the predictions on policy stance premature.
- Austan Goolsbee, Chicago Fed President echoed a similar sentiment, cautioning that the market's optimism for interest rate cuts may have gone beyond realistic expectations.
- US Housing Starts rose to 1.56M, surpassing the market consensus of 1.36M. However, Building Permits declined to 1.46M, slightly below the forecast of 1.47M.
Technical Analysis: Australian Dollar maintains its position below 0.6750 major level
The Australian Dollar trades higher around 0.6740 on Thursday, slightly below the significant level at 0.6750. The prevailing bullish sentiment suggests a potential for the AUD/USD pair to revisit the recent peak at 0.6779 and aim for the key resistance at the psychological level of 0.6800. On the downside, support levels may be identified at the seven-day Exponential Moving Average (EMA) at 0.6707, followed by the psychological level at 0.6700. A breach below this crucial support region could lead the AUD/USD pair towards the 23.6% Fibonacci retracement at 0.6659 before reaching the major zone at 0.6650.
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 New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.02% | 0.02% | -0.02% | -0.10% | -0.29% | 0.08% | -0.09% | |
| EUR | 0.02% | 0.05% | 0.02% | -0.07% | -0.23% | 0.13% | -0.06% | |
| GBP | -0.03% | -0.06% | -0.03% | -0.12% | -0.31% | 0.06% | -0.12% | |
| CAD | 0.03% | -0.01% | 0.05% | -0.07% | -0.26% | 0.11% | -0.07% | |
| AUD | 0.10% | 0.06% | 0.12% | 0.08% | -0.17% | 0.19% | 0.00% | |
| JPY | 0.31% | 0.24% | 0.33% | 0.25% | 0.21% | 0.38% | 0.20% | |
| NZD | -0.08% | -0.12% | -0.06% | -0.11% | -0.19% | -0.35% | -0.19% | |
| CHF | 0.09% | 0.05% | 0.11% | 0.05% | -0.03% | -0.21% | 0.16% |
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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