Australian Dollar attempts to retrace recent losses amid a steady US Dollar

  • Australian Dollar depreciated after the Fed’s ruling out of the rate cut in March.
  • Australia’s Business Confidence (QoQ) decreased to -6 in the fourth quarter from the -1 prior.
  • The weak Aussie quarterly inflation report strengthens the speculation of two quarter-point reductions in 2024.
  • US Dollar faced challenges due to the disappointing US ADP Employment Change.

The Australian Dollar (AUD) attempts to retrace its recent losses on Thursday. However, the AUD/USD pair witnessed a decrease in the preceding session following Federal Reserve (Fed) Chairman Jerome Powell’s announcement. Powell ruled out the possibility of a rate cut in the upcoming March meeting, a decision widely anticipated after the Fed chose to maintain current interest rates. He emphasized the persistence of elevated inflation and highlighted the robust expansion of economic activity.

Australia’s Dollar might face downward pressure, with bond traders increasing their expectations of early interest rate cuts by the Reserve Bank of Australia (RBA) following an unexpectedly weak quarterly inflation report. Despite this, the RBA is anticipated to almost certainly maintain the cash rate at 4.35% during its February meeting. Future markets are fully pricing in two quarter-point reductions in 2024, with the initial adjustment expected in August.

National Australia Bank’s Business Confidence (QoQ) decreased to -6 in the fourth quarter from the previous decrease of -1. Building Permits (MoM) declined by 9.5% against the expected growth of 1.1% in December.

The US Dollar Index (DXY) faced losses following disappointing US employment figures but managed to recover ground after Fed Chair Powell made hawkish comments on Wednesday. The rise in US Treasury yields provides additional support for the US Dollar (USD). Furthermore, increased risk aversion stemming from heightened tensions in the Middle East could contribute to bolstering the Greenback. This, in turn, poses a challenge for the AUD/USD pair.

The US ADP Employment Change reported 107K, falling short of the expected 145K in January, with the previous reading at 158K in December. Thursday will see attention on US Initial Jobless Claims, Nonfarm Productivity, and ISM Manufacturing PMI.

Daily Digest Market Movers: Australian Dollar declines on hawkish remarks by Fed

  • Australia’s Monthly Consumer Price Index (CPI) recorded a year-on-year increase of 3.4% in December, down from November’s 4.3% and below the anticipated 3.7%.
  • RBA Trimmed Mean CPI (YoY) for the fourth quarter stood at 4.2%, a decline from the 5.2% reported previously and also lower than the expected 4.3%.
  • Australian CPI (QoQ) figure came in at 0.6%, softer than the anticipated 0.8% and a notable decrease from the previous reading of 1.2%.
  • Chinese Non-Manufacturing Purchasing Managers’ Index (PMI) improved to 50.7, slightly surpassing the expected figure of 50.6.
  • China’s Manufacturing PMI reached 49.2, meeting the anticipated value and advancing from the previous reading of 49.
  • US balance sheet showed that since October 2023, the decrease in yields has contributed to the sustainability of the US Treasury, and stronger economic growth has led to improved tax receipts. The US Treasury Department recently announced plans to borrow $760 billion in the first quarter, which is lower than the previous estimate of $816 billion in October.
  • The US Employment Cost Index eased at 0.9% compared to the 1.0% as expected in the fourth quarter.
  • Chicago Purchasing Managers’ Index reported a reading of 46 in January, against the expected increase to 48 from 47.2 prior.
  • US JOLTS Job Openings improved to 9.026M in December from 8.925M prior, exceeding the anticipated 8.75M.
  • US Housing Price Index (MoM) was unchanged at the reading of 0.3% in November.

Technical Analysis: Australian Dollar stays above the weekly low of 0.6551

The Australian Dollar trades around 0.6570 on Thursday, hovering above the weekly low of 0.6551, which coincides with a significant support level at 0.6550. A breach of this support might prompt a retest of January’s low at 0.6524. On the upside, the AUD/USD pair could face initial resistance at the psychological level of 0.6600, in conjunction with the 23.6% Fibonacci retracement level at 0.6606. A successful breakthrough above the latter may lead the pair toward testing the 21-day Exponential Moving Average (EMA) at 0.6617, followed by a crucial resistance level at 0.6650.

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 Swiss Franc.

USD   -0.08% -0.02% -0.03% -0.11% -0.10% -0.19% 0.03%
EUR 0.08%   0.05% 0.01% -0.02% -0.01% -0.13% 0.10%
GBP 0.03% -0.05%   -0.03% -0.06% -0.05% -0.18% 0.05%
CAD 0.03% -0.01% 0.03%   -0.03% -0.03% -0.15% 0.11%
AUD 0.11% 0.02% 0.07% 0.03%   0.00% -0.11% 0.16%
JPY 0.10% 0.02% 0.06% 0.01% -0.04%   -0.16% 0.11%
NZD 0.20% 0.15% 0.21% 0.18% 0.11% 0.10%   0.25%
CHF -0.03% -0.11% -0.05% -0.06% -0.14% -0.14% -0.25%  

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

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.

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.

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.

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.

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.