Australian Dollar remains below a major level amid subdued US Dollar, Chicago PMI eyed

Australian Dollar gains ground amid weaker US Dollar.
Australian central bank’s future interest rate decisions will be data-dependent.
Downbeat US economic data reinforces the bets on a dovish Fed outlook.

The Australian Dollar (AUD) retraces its recent losses on Friday, benefiting from a subdued US Dollar (USD). The AUD/USD pair experienced losses in the previous session as the Greenback gained some ground, possibly linked to upbeat US Treasury yields. However, the Aussie Dollar shows strength on the back of improved risk appetite, as market participants anticipate a dovish stance from the Federal Reserve (Fed) concerning interest rates in early 2024.

Australia's recent meeting minutes highlighted the Reserve Bank of Australia's (RBA) emphasis on carefully examining additional data to assess the balance of risks before making future interest rate decisions. The resilience displayed in inflation and housing prices is a crucial factor in this assessment. The RBA's forecast approaching the upper boundary of the 2-3% inflation target by the end of 2025 indicates a cautious but optimistic outlook. The expectation that the RBA will likely avoid a rate cut in the upcoming February policy meeting provides support for keeping the Australian Dollar (AUD) higher.

The US Dollar Index (DXY) posted gains on Thursday, although less-than-optimistic US data may have curbed the Greenback's ascent, potentially influencing the Federal Reserve to take a more cautious stance in upcoming monetary policy decisions. The unexpected rise in US Initial Jobless Claims to 218K for the week ending December 23, surpassing the expected 210K, and the unchanged Pending Home Sales (MoM) at 0.0% in November against the anticipated 1.0% increase, contribute to this narrative. Traders are now keeping a close eye on Friday's release of the Chicago Purchasing Managers' Index for December for further insights.

Daily Digest Market Movers: Australian Dollar improves on 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 of 4.7%, compared to the previous 4.8% rise.
RBA highlighted the examination of additional data to assess the balance of risks before deciding on future interest rates in its recent Meeting Minutes.
China's National Development and Reform Commission's (NDRC) Chairman, Zheng Shanjie, mentioned in a meeting held on Tuesday that China will strive to expand domestic demand, ensuring a speedy economic recovery, and promoting stable growth.
China's year-on-year Industrial Profits for January to November registered a decline of 4.4%, indicating a slowdown and highlighting the need for additional policy support from Beijing to bolster growth in the world's second-largest economy.
Former Dallas Federal Reserve President Robert Kaplan emphasized that he believed that the Federal Reserve is cautious to avoid a scenario where the monetary tightening becomes overly restrictive.
US Richmond Fed Manufacturing Index recorded a significant decline of 11 points in December, exceeding the market's expectation of a 7-point drop. This comes after a 5-point decrease in November.
US Housing Price Index (MoM) contracted to 0.3% from 0.7% prior, falling short of 0.5% expectations in October.

Technical Analysis: Australian Dollar treads water below 0.6850 major level

The Australian Dollar hovers around 0.6840 on Friday. The prevailing bullish sentiment suggests a potential for the AUD/USD pair to surpass again the major resistance level at 0.6850 following the psychological level of 0.6900. On the downside, the AUD/USD pair could find the key support at the seven-day Exponential Moving Average (EMA) at 0.6810 before the psychological support at 0.6800. A breach below this crucial support zone could potentially lead the pair to navigate the 23.6% Fibonacci retracement level at 0.6725.

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		-0.05%	-0.25%	0.04%	-0.22%	-0.15%	-0.35%	-0.08%
EUR	0.06%		-0.19%	0.10%	-0.16%	-0.09%	-0.30%	-0.03%
GBP	0.27%	0.20%		0.30%	0.03%	0.10%	-0.10%	0.16%
CAD	-0.04%	-0.10%	-0.29%		-0.26%	-0.19%	-0.39%	-0.11%
AUD	0.22%	0.16%	-0.03%	0.28%		0.07%	-0.13%	0.14%
JPY	0.16%	0.12%	-0.09%	0.21%	-0.06%		-0.20%	0.09%
NZD	0.35%	0.31%	0.11%	0.41%	0.13%	0.20%		0.27%
CHF	0.09%	0.06%	-0.15%	0.14%	-0.12%	-0.03%	-0.26%

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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