- Australian Dollar surged as US Dollar lost ground near month lows.
- Australian central bank will evaluate additional data to decide future monetary policy.
- Softer US data reinforces speculation of the Fed’s easing monetary policy in early 2024.
- US GDP Annualized Q3 and Core PCE QoQ eased 4.9% and 2.0%, respectively.
The Australian Dollar (AUD) trades below its recent peak of 0.6802 on Friday, a level not reached in almost five months. The initial surge in the Aussie Dollar was attributed to an enhanced risk appetite in the market coupled with a depreciation of the US Dollar (USD). Additionally, the hawkish sentiment surrounding the Reserve Bank of Australia (RBA) keeps the Australian Dollar stronger.
Australia's robust inflation and steady housing prices could be factors influencing the Reserve Bank of Australia (RBA) to uphold its hawkish stance. If the global economy gains momentum, especially with potential economic stimulus from China, there is a likelihood that the RBA might continue to raise interest rates. The latest RBA forecasts reaching the upper limit of the 2-3% inflation projection by the end of 2025, it seems the RBA may still have room for further consideration.
The Reserve Bank of Australia (RBA), as highlighted in its recent Meeting Minutes, emphasized the importance of thoroughly examining additional data to assess the balance of risks before deciding on future interest rates. The World Interest Rate Probability Tool (WIRP) reflects a widespread expectation that the RBA is likely to abstain from a rate cut in the upcoming February policy meeting.
The US Dollar Index (DXY) faces downward pressure as speculations about potential easing by the US Federal Reserve (Fed) gain traction. These heightened expectations stem from the aftermath of the Fed's recent dovish stance in its latest meeting. Despite the mounting speculations, Fed officials have discouraged premature conclusions, advocating for a cautious approach.
The Treasury bond yields in the United States (US) initially saw a decline in the previous session but managed to recover. As of now, the 2-year and 10-year rates stand at 4.34% and 3.88%, respectively, impacting the appeal of the USD. Additionally, the fluctuation in US economic data on Thursday might have added pressure to the Greenback.
US Bureau of Economic Analysis (BEA) reveals that Gross Domestic Product Annualized (Q3) grew at a rate of 4.9%, slightly below the expected consistency of 5.2%. Additionally, Core Personal Consumption Expenditures (QoQ) decreased to 2.0% from the previous 2.3%. On the employment front, Initial Jobless Claims for the week ending on December 15 came in at 205K, surpassing the expected 215K but still close to the prior figure of 203K. On Friday, a slew of data releases, along with Core Personal Consumption Expenditures - Price Index data, and Michigan Consumer Sentiment Index will be eyed.
Daily Digest Market Movers: Australian Dollar rises on improved risk appetite, hawkish RBA
- RBA Private Sector Credit (MoM) demonstrated a 0.4% increase in November, surpassing the previous rise of 0.3%. However, the Year-over-Year data indicated a decrease to 4.7%, compared to the previous 4.8% rise.
- 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.
- 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 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.
- 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 hovers below 0.6800 lined up with a five-month high
The Australian Dollar trades below the psychological resistance at 0.6800 and a five-month high at 0.6802 on Friday. The prevailing bullish sentiment suggests a potential for the AUD/USD pair to surpass the recent peak and aim for the key resistance at the major level of 0.6850. On the downside, support levels would be identified at the major level at 0.6750 before the seven-day Exponential Moving Average (EMA) at 0.6740. A breach below this crucial support region could lead the AUD/USD pair towards the psychological support at 0.6700 followed by the 23.6% Fibonacci retracement at 0.6679.
AUD/USD: Daily Chart
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US Dollar price today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Australian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.06% | -0.03% | 0.03% | 0.26% | 0.13% | 0.21% | 0.08% | |
| EUR | -0.05% | -0.08% | -0.03% | 0.21% | 0.08% | 0.15% | 0.04% | |
| GBP | 0.03% | 0.08% | 0.04% | 0.29% | 0.15% | 0.23% | 0.12% | |
| CAD | -0.03% | 0.04% | -0.06% | 0.23% | 0.12% | 0.18% | 0.06% | |
| AUD | -0.25% | -0.22% | -0.27% | -0.22% | -0.12% | -0.03% | -0.15% | |
| JPY | -0.10% | -0.02% | -0.10% | -0.07% | 0.18% | 0.12% | 0.00% | |
| NZD | -0.23% | -0.14% | -0.23% | -0.20% | 0.06% | -0.12% | -0.11% | |
| CHF | -0.11% | -0.02% | -0.12% | -0.06% | 0.17% | -0.02% | 0.12% |
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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