Australian Dollar appreciates on improved risk appetite amid firmer US Dollar

The Australian Dollar appreciated after the release of stronger-than-expected CPI data on Wednesday.
The Australian Dollar receives upward support due to the improved risk appetite, along with the higher ASX 200 Index.
The US Dollar faced challenges after the downbeat PMI data was released on Tuesday.

The Australian Dollar (AUD) extends its winning streak for the third successive day after the release of the better-than-expected Consumer Price Index (CPI) data on Wednesday. The upbeat inflation figures have the potential to fuel a hawkish sentiment regarding the Reserve Bank of Australia’s (RBA) monetary policy outlook. This has contributed to the strength of the Australian Dollar (AUD), thereby supporting the AUD/USD pair.

The Australian Dollar (AUD) advances, tracking the higher ASX 200 Index, with notable contributions from the technology and healthcare sectors. Australian stocks are mirroring the positive momentum observed on Wall Street, driven by strong corporate earnings reports that have bolstered market sentiment.

The US Dollar Index (DXY), gauging the US Dollar (USD) against six major currencies, experiences downward pressure amid a decrease in US Treasury yields. Furthermore, disappointing Purchasing Managers Index (PMI) data from the United States (US) weighed on the US Dollar (USD), thereby supporting the AUD/USD pair. Nevertheless, inflation reports indicate that business activity in the United States continued to expand in April, albeit at a slower pace compared to March.

Daily Digest Market Movers: Australian Dollar appreciates on upbeat consumer inflation data

Australia’s Consumer Price Index (CPI) rose by 1.0% QoQ in the first quarter of 2024, against the expected 0.8% and 0.6% prior. CPI (YoY) increased by 3.6% compared to the forecasted 3.4% for Q1 and 4.1% prior.
Australia’s Monthly Consumer Price Index (YoY) rose by 3.5% in March, against the market expectations and the previous reading of 3.4%.
On Tuesday, the US preliminary S&P Global Composite PMI fell to 50.9 in April from the previous reading of 52.1. Meanwhile, the Manufacturing PMI dropped to 49.9 from 51.9 in the previous reading, weaker than the estimation of 52.0. The Services PMI decreased to 50.9, compared to 51.7 prior, worse than the 52.0 expected.
Australia's Judo Bank Composite Purchasing Managers Index (PMI) released on Tuesday, showed a surge to a 24-month high of 53.6 in April, marking an improvement from the previous month's 53.3. Manufacturing PMI rose to an eight-month high of 49.9 in April, compared to March's 47.3. Services PMI declined to a 2-month low of 54.2 compared to the previous reading of 54.4.
The China Securities Journal reported on Tuesday that the People's Bank of China (PBoC) will decrease the Medium-term Lending Facility (MLF) rate, aiming to lower funding costs. The next MLF rate setting is scheduled for May 15. This decision could potentially influence the Australian market, given the close trade relationship between the two countries.
The likelihood of the Federal Reserve's (Fed) interest rates remaining unchanged in the June meeting has risen to 84.6%, up from the previous week's 82.7%, according to the CME FedWatch Tool.

Technical Analysis: Australian Dollar moves above the psychological level of 0.6500

The Australian Dollar trades around 0.6520 on Wednesday. The pair has breached into the symmetrical triangle, indicating a shift towards bullish sentiment. Furthermore, the 14-day Relative Strength Index (RSI) is above the 50-level, supporting this bullish outlook.

The AUD/USD pair may aim for the psychological level of 0.6600 and attempt to reach the upper boundary of the symmetrical triangle near 0.6639, potentially reinforcing the bullish sentiment.

In terms of the downside, immediate support is anticipated around the psychological level of 0.6500, aligned with the lower boundary of the triangle. A breach below this channel could exert downward pressure on the AUD/USD pair, with the next significant support level at 0.6456. Further support is located at April’s low of 0.6362.

AUD/USD: Daily Chart

Australian Dollar price today

The table below shows the percentage change of the Australian Dollar (AUD) against listed major currencies today. The Australian Dollar was the strongest against the Pound Sterling.

	USD	EUR	GBP	CAD	AUD	JPY	NZD	CHF
USD		0.13%	0.16%	0.10%	-0.30%	0.09%	-0.02%	0.21%
EUR	-0.13%		0.02%	-0.01%	-0.39%	-0.04%	-0.13%	0.07%
GBP	-0.16%	-0.03%		-0.04%	-0.42%	-0.06%	-0.16%	0.06%
CAD	-0.10%	0.03%	0.04%		-0.40%	-0.02%	-0.11%	0.09%
AUD	0.30%	0.41%	0.45%	0.39%		0.32%	0.29%	0.44%
JPY	-0.09%	0.02%	0.08%	0.03%	-0.37%		-0.06%	0.12%
NZD	0.05%	0.15%	0.17%	0.11%	-0.27%	0.05%		0.19%
CHF	-0.21%	-0.07%	-0.07%	-0.10%	-0.48%	-0.11%	-0.22%

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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