Australian Dollar treads water below a psychological level despite a stable US Dollar

  • Australian Dollar moves on an upward trajectory during a risk aversion sentiment.
  • Australia’s Retail Sales (MoM) is expected to decline by 0.7% in December from the previous growth of 2.0%.
  • Middle East situation has escalated due to the killings of three US service members in a drone attack on a US outpost in Jordan.
  • US Dollar improves on the back of higher US bond yields.

The Australian Dollar (AUD) trades higher on Monday, recovering its recent losses in the previous session. The AUD/USD pair advances despite a stronger US Dollar (USD) amid heightened geopolitical tensions. Overnight on Sunday, three United States (US) service members were killed and at least 24 were injured in a drone attack on a US outpost in Jordan, near its border with Syria. Reports suggest that the administration of US President Joe Biden and the US military are formulating specific plans on how to respond to the attack that resulted in the death of three US troops. Possible measures being considered by the military include strikes into Iran, marking a significant escalation if implemented.

Australia’s money market holds steady due to the upbeat Crude oil prices. The Aussie Dollar (AUD) might have also gained support from recent news indicating additional stimulus measures by the People’s Bank of China (PBoC). The Reserve Bank of Australia’s (RBA) Bulletin has indicated that businesses, over the past six months, generally expect a moderation in their price growth, with prices anticipated to remain above the RBA’s inflation target range of 2.0–3.0%. However, the RBA is anticipated to lower borrowing costs later this year. Investors await Tuesday’s Australian Retail Sales, expecting a decline of 0.7% against the previous increase of 2.0%. Furthermore, Consumer Price Index (CPI) data will be eyed on Wednesday.

The US Dollar Index (DXY) cheers the improved US Treasury bond yields, which in turn, could limit the advances of the AUD/USD pair. On Friday, the US Core Personal Consumption Expenditures Price Index (PCE) for December showed a 0.2% monthly increase, in line with expectations, compared to 0.1% in the previous reading. The yearly Core PCE rose 2.9%, falling short of the 3.0% expected and the previous reading of 3.2%.

The Federal Open Market Committee (FOMC) statement is scheduled for Wednesday, January 31, with the consensus expecting the Committee to leave the Fed Funds rate unchanged at 5.25-5.50%. However, the market bias toward a rate cut in March may exert downward pressure on the USD. Additionally, Tuesday’s Housing Price Index and Consumer Confidence figures will be closely watched for further market insights.

Daily Digest Market Movers: Australian Dollar advances despite an improved US Dollar

  • Australia’s Manufacturing PMI increased from 47.6 to 50.3, showcasing improvement. Services PMI also saw an uptick, rising from 47.1 to 47.9. The Composite PMI registered an increase, reaching 48.1 compared to December’s 46.9.
  • Chinese financial media reported that the People’s Bank of China (PBoC) may cut the Medium-term Lending Facility (MLF) rate in the current quarter. The announcement follows the recent statement by PBoC Governor Pan Gongsheng, who revealed that the Bank would reduce the Required Reserve Ratio (RRR) by 50 basis points starting from February 5th.
  • US Treasury Secretary Janet Louise Yellen has remarked that the robust performance of the US economy in the fourth quarter is viewed as a positive development and is not likely to pose challenges in terms of inflation.
  • The US Gross Domestic Product Annualized (Q4) reported a reading of 3.3% against the previous reading of 4.9%, exceeding the market consensus of 2.0%.
  • US Initial Jobless Claims for the week ending on January 19, surprisingly reduced to 214K compared to the expected increase of 200K from 189K prior.

Technical Analysis: Australian Dollar moves towards the psychological level at 0.6600

The Australian Dollar trades around 0.6580 on Monday, encountering initial resistance at the psychological threshold of 0.6600. This level coincides with the 23.6% Fibonacci retracement at 0.6606, aligned with the 14-day Exponential Moving Average (EMA) at 0.6610. A decisive breakthrough above this resistance area may propel the AUD/USD pair towards the key barrier at 0.6650. Conversely, downside movement could lead to a revisit of the previous week’s low at 0.6551, aligning with the significant level at 0.6550. If this support is breached, the pair could revisit the monthly low at 0.6524.

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 Euro.

USD   0.03% -0.05% -0.05% -0.18% -0.04% -0.06% -0.04%
EUR -0.02%   -0.06% -0.07% -0.19% -0.04% -0.09% -0.06%
GBP 0.03% 0.06%   -0.02% -0.15% 0.02% -0.03% 0.00%
CAD 0.05% 0.07% 0.01%   -0.11% 0.03% -0.01% 0.01%
AUD 0.18% 0.19% 0.13% 0.12%   0.15% 0.12% 0.14%
JPY 0.03% 0.04% 0.11% -0.03% -0.18%   -0.06% -0.01%
NZD 0.06% 0.10% 0.02% 0.01% -0.11% 0.03%   0.03%
CHF 0.04% 0.05% 0.00% 0.00% -0.12% 0.02% -0.02%  

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.