Australian Dollar moves below the major level ahead on Fed decision

Australian Dollar hovers around a major level ahead of the US PPI, Fed policy decision.
Australia’s Treasurer Jim Chalmers presented a budget forecast of AUD 1.1 billion in the MYEFO, down from the AUD 13.9 billion previous forecast.
US CPI and Core CPI came in at 3.1% and 4.0% YoY, respectively, as expected.
FOMC is expected to make no change in its policy rates.

The Australian Dollar (AUD) continues to lose ground on Wednesday, particularly after the release of moderate Consumer Price Index (CPI) data from the United States (US). The AUD/USD pair exhibited high volatility in the previous session, experiencing a modest drop after briefly surpassing the 0.6600 level. Market participants are now awaiting the release of the US Producer Price Index (PPI) and the Federal Reserve's (Fed) Interest Rate Decision later in the North American session.

Australia's government anticipates a significantly improved budget bottom line this year as revenues outpace forecasts. In the mid-year economic and fiscal outlook (MYEFO) presented by Labor Treasurer Jim Chalmers, a budget deficit of just AUD 1.1 billion (USD 721.4 million) in the year to end June 2024 is projected, down from the AUD 13.9 billion forecasted back in May. The government is resisting calls for additional cost-of-living handouts to avoid exacerbating inflationary pressures.

The US Dollar Index (DXY) attempts to recover recent losses amid downbeat US Treasury yields. The DXY has experienced a drop, with the Federal Open Market Committee (FOMC) anticipated to make no adjustments in its last policy decision. Inflation in the US cooled as expected in November, as indicated by the Consumer Price Index (CPI). Investors will likely closely monitor Fed Chair Jerome Powell’s comments for signals about potential rate adjustments in the coming year.

Daily Digest Market Movers: Australian Dollar moves downward amid hawkish RBA

ANZ-Roy Morgan Australian Consumer Confidence weekly survey rose to 80.8 from the previous week's 76.4.
Westpac Consumer Confidence for December showed improvement at 2.7% from the previous decline of 2.6%.
National Australia Bank Business Confidence, which surveys the current business conditions in Australia and provides insights into the short-term performance of the overall economy, declined to 9 from the previous decrease of 2.
RBA Governor Michele Bullock expressed confidence, stating, "Don't think we are falling behind in the inflation fight." Bullock emphasized a cautious approach, closely monitoring data, and highlighted the RBA's commitment to preserving employment gains.
US Bureau of Labor Statistics revealed on Tuesday that the US Consumer Price Index (CPI) for November rose by 0.1% month-on-month and 3.1% year-on-year. Both figures aligned with market consensus, indicating that inflation levels met expectations.
US Core CPI, which excludes volatile food and energy prices, climbed by 0.3% MoM and 4.0% YoY, in line with expectations.

Technical Analysis: Australian Dollar hovers around the major level at 0.6550

The Australian Dollar trades around 0.6560 on Wednesday. The 21-day Exponential Moving Average (EMA) at 0.6554 serves as a key support level before the significant level at 0.6550. If this support area is breached, it could exert downward pressure on the AUD/USD pair, potentially leading it toward the 38.2% Fibonacci retracement level at 0.6526. On the upside, the region around the psychological level at 0.6600 is likely to act again as a potential resistance barrier.

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 weakest against the US Dollar.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		0.16%	0.34%	0.09%	0.30%	0.45%	0.77%	0.12%
EUR	-0.15%		0.19%	-0.05%	0.13%	0.30%	0.62%	-0.03%
GBP	-0.35%	-0.19%		-0.25%	-0.06%	0.11%	0.42%	-0.24%
CAD	-0.11%	0.05%	0.24%		0.17%	0.35%	0.66%	-0.01%
AUD	-0.27%	-0.13%	0.05%	-0.18%		0.14%	0.49%	-0.17%
JPY	-0.46%	-0.29%	-0.11%	-0.37%	-0.19%		0.32%	-0.34%
NZD	-0.78%	-0.62%	-0.42%	-0.67%	-0.48%	-0.32%		-0.65%
CHF	-0.12%	0.03%	0.22%	-0.02%	0.17%	0.33%	0.65%

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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