Australian Dollar gains ground ahead of US PMI data, remains at the mercy of Greenback

Australian Dollar could extend gains on the hawkish tone of RBA Governor Bullock.
Australia’s chief policymaker highlighted that the inflation challenge is fueled by domestic demand.
US Dollar receives downward pressure from the growing likelihood of further rate hikes by the Fed.
Improved US Treasury yields could provide support for the Greenback.

The Australian Dollar (AUD) continues to gain ground as the US Dollar struggles on Friday. However, the US Dollar (USD) experienced a modest drop on Thursday in a low-volume session, given the closure of United States (US) markets for Thanksgiving.

Australia's Dollar experiences upward support despite Australian PMI hitting multi-month lows. This could be attributed to the hawkish comments from Reserve Bank of Australia (RBA) Governor Michele Bullock. Bullock highlighted that the inflation challenge is increasingly fueled by domestic factors, especially demand. Emphasizing that monetary policy tightening is the suitable response to demand-driven inflation.

The US Dollar Index (DXY) appears to be on a downward trend despite the improvement in US Treasury yields. The growing likelihood of no further interest rate hikes by the Federal Reserve (Fed) contributes to the risk-on factor, which might be undermining the Greenback as market dynamics adjust to the evolving expectations regarding Fed policy.

In the economic calendar, the US S&P Global PMI data are set to be released on Friday, with a slight expected decline in the Services sector from 50.6 to 50.4 and in the Manufacturing sector from 50.0 to 49.8.

Daily Digest Market Movers: Australian Dollar gains ground on hawkish RBA tone, less expectations of Fed rate hikes

The preliminary Judo Bank Manufacturing PMI (MoM) declined to 47.7 in November, as compared to the previous month's 48.2. Judo Bank Services PMI eased to 46.3 from the prior 47.9, and the Composite PMI decreased to 46.4 from the previous reading of 47.6.
RBA Governor Michele Bullock mentioned that prices are rising strongly for most goods and services, and service costs are increasing due to high demand. RBA's liaison with firms indicates persistent domestic cost pressures, with high capacity utilization and a tight labor market.
National Australia Bank (NAB) anticipates another RBA rate hike, expecting it to occur at the February 2024 meeting.
RBA's meeting minutes revealed that the board acknowledged a "credible case" against an immediate rate hike but considered the case for tightening stronger due to increased inflation risks. The decision on further tightening would hinge on data and risk assessment.
RBA’s minutes also stressed the importance of preventing even a modest rise in inflation expectations. Board forecasts assumed one or two more rate rises, and rising house prices suggested policy might not be overly restrictive.
The Federal Open Market Committee (FOMC) meeting minutes reveal that members would entertain the idea of tightening monetary policy further if incoming information suggests insufficient progress toward the Committee's inflation objective.
FOMC members unanimously agree that policy should stay restrictive for some time until there is clear and sustainable evidence of inflation moving down toward the Committee's target.
US Jobless Claims showed a greater-than-expected decline in the week ending on November 17, with Initial Claims falling to 209K from 233K.
US Durable Goods Orders fell 5.4% in October, exceeding the expected 3.1% decline.
US University of Michigan Consumer Sentiment Index for November stood at 61.3, compared to the expected reading of 60.5.

Technical Analysis: Australian Dollar moves back toward 0.6550

The Australian Dollar hovers around the 0.6560 level on Friday. The AUD/USD pair has successfully surpassed the barrier at the significant 0.6550 level, paving the way for a potential revisit to the three-month high at 0.6589, situated around the psychological resistance of 0.6600. On the downside, the seven-day Exponential Moving Average (EMA) at 0.6536 could serve as crucial support, followed by the 23.6% Fibonacci retracement at 0.6514. A breach below this level might lead the pair to test the major support at the 0.6500 level.

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 strongest against the Canadian Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		0.00%	-0.05%	0.03%	-0.07%	-0.20%	-0.13%	-0.05%
EUR	0.01%		-0.06%	0.05%	-0.08%	-0.18%	-0.15%	-0.04%
GBP	0.06%	0.03%		0.08%	-0.01%	-0.13%	-0.08%	0.00%
CAD	-0.04%	-0.04%	-0.08%		-0.10%	-0.23%	-0.17%	-0.09%
AUD	0.07%	0.06%	0.02%	0.10%		-0.13%	-0.06%	0.02%
JPY	0.19%	0.15%	0.13%	0.22%	0.14%		0.05%	0.13%
NZD	0.14%	0.12%	0.09%	0.16%	0.06%	-0.05%		0.07%
CHF	0.05%	0.05%	0.01%	0.09%	-0.01%	-0.13%	-0.08%

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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