- AUD/USD slumps to near 0.6170 as the US Dollar performs strongly on stubborn US inflation outlook.
- Investors await the US NFP data for fresh guidance on interest rates.
- The Australian Dollar weakens on moderate growth in Australian Retail Sales and China’s inflation.
The AUD/USD pair posts a fresh two-year low near 0.6170 in Thursday’s European session. The Aussie pair performs weakly as the US Dollar (USD) strengthens after reports from CNN showed that United States (US) President-elect Donald Trump plans to declare a national economic emergency. Market participants see the move as a major step by Trump towards constructing a new tariff program through legal justification to make “America great again”.
US Dollar PRICE Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the British Pound.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.09% | 0.60% | -0.24% | 0.00% | 0.29% | 0.25% | 0.05% | |
| EUR | -0.09% | 0.49% | -0.33% | -0.08% | 0.20% | 0.16% | -0.06% | |
| GBP | -0.60% | -0.49% | -0.83% | -0.59% | -0.32% | -0.34% | -0.54% | |
| JPY | 0.24% | 0.33% | 0.83% | 0.23% | 0.52% | 0.43% | 0.28% | |
| CAD | -0.01% | 0.08% | 0.59% | -0.23% | 0.29% | 0.24% | 0.05% | |
| AUD | -0.29% | -0.20% | 0.32% | -0.52% | -0.29% | -0.04% | -0.24% | |
| NZD | -0.25% | -0.16% | 0.34% | -0.43% | -0.24% | 0.04% | -0.19% | |
| CHF | -0.05% | 0.06% | 0.54% | -0.28% | -0.05% | 0.24% | 0.19% |
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 US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
Investors expect that Trump’s protectionist policies will be pro-growth and inflationary for the US. This scenario is USD-positive as it typically forces Federal Reserve (Fed) policymakers to adopt a hawkish monetary policy stance.
Meanwhile, the Federal Open Market Committee (FOMC) minutes of the December meeting in which the Fed cut interest rates by 25 basis points (bps) to the range of 4.25%-4.50% have already shown that officials are worried about growing risks to a slowdown in the US inflation progress towards the central bank’s target of 2% due to potential trade and immigration policy changes.
Going forward, investors will focus on the US Nonfarm Payrolls (NFP) data for December, which will be published on Friday. The US official employment data will influence market expectations for the Fed’s likely interest rate action in the policy meeting later this month.
The Australian Dollar (AUD) underperforms its major peers on Thursday amid weaker-than-expected growth in the Australian Retail Sales data for November. Aussie Retail Sales grew by 0.8%, slower than estimates of 1% but faster than the former reading of 0.5%. Slower-than-expected Retail Sales growth is expected to boost Reserve Bank of Australia's (RBA) dovish bets. Traders have fully priced in a 25-bps interest rate reduction from the RBA in the policy meeting in April.
Apart from that, an expected slowdown in the China Consumer Price Index (CPI) data for December has also weighed on the AUD. The Aussie currency faces pressure being a proxy to China’s economy. China’s annual CPI rose by 0.1%, as expected, slower than the former reading of 0.2%.
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.
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