Australian Dollar retraces its recent gains amid a stable US Dollar

  • Australian Dollar found support as the domestic share market surged following a rally in the US markets on Friday.
  • Australian Central Bank is expected to reduce the policy rate after the softer Consumer Confidence and Employment Change figures.
  • PBoC keeps its Loan Prime Rate (LPR) steady at 3.45% and 4.20% for the one-year and the five years, respectively.
  • US Dollar could draw support as a safe-haven status while the trade disruption threat escalates in the Red Sea.

The Australian Dollar (AUD) hovers around a psychological level at 0.6600 on Monday amid market uncertainty driven by discussions between the United States (US) and the United Kingdom (UK) on intensifying actions against Iran-backed Houthi terrorists in Yemen. Nevertheless, the AUD/USD pair finds some uplift from a subdued US Dollar (USD), influenced by a reduction in long-term US Treasury yields.

Australia’s dollar faces a setback amidst speculation about potential early interest rate cuts by the Reserve Bank of Australia (RBA). This speculation is fueled by the latest subdued Aussie Consumer Confidence and Employment Change figures. However, the AUD could cheer the surge in the domestic share market, mirroring a rally in the US that propelled the S&P 500 and the Nasdaq to new records on Friday. This surge was driven by expectations that the US Federal Reserve (Fed) is poised to lower interest rates later in the year. Furthermore, optimism was fueled by the projection from the world's largest contract chipmaker, Taiwan Semiconductor Manufacturing, indicating a forecast of more than 20% revenue growth in 2024, which had a positive impact on global stocks.

The People's Bank of China has decided to keep its Loan Prime Rate (LPR) steady for both the one-year and five-year terms. The rate remains at 3.45% for the one-year period and 4.20% for the five-year period.

The US Dollar Index (DXY) seems to continue its losing streak. However, the US Dollar could find some support due to concerns about maritime trade disruption in the Red Sea. The US and the UK are looking to intensify their campaign without inciting a broader conflict with Iran. More ships are diverting away from the Suez Canal and the Red Sea. Shipping vessels are assessing the risks associated with navigating the Red Sea, as insurance costs rise. Opting for the alternative route around the southern tip of Africa may increase delivery times, shipping costs, and inflation. This situation could enhance risk aversion sentiments, leading traders to seek the safe-haven US Dollar, consequently exerting downward pressure on the AUD/USD pair.

San Francisco Fed President Mary Daly expressed her belief on Friday that the central bank still has significant work to accomplish in bringing inflation back down to the 2.0% target. She emphasized that it is premature to consider interest-rate cuts as an imminent measure. Atlanta Fed President Raphael Bostic reiterated his position on expectations for rate cuts ahead of the Fed entering the "blackout" period before the next rate meeting scheduled for January 31. Bostic emphasized his openness to adjusting his outlook on the timing of rate cuts and highlighted that the Fed remains data-dependent.

Daily Digest Market Movers: Australian Dollar rises on weaker US Dollar

  • Australia’s Consumer Inflation Expectations remained steady at 4.5% in January.
  • Aussie seasonally adjusted Unemployment Rate held firm at 3.9% in line with expectations for December.
  • Australian Employment Change decreased by 65.1K, contrary to the anticipated increase of 17.6K.
  • The preliminary US Michigan Consumer Sentiment Index rose to 78.8 in January from 69.7 prior, exceeding the expected figure of 70.
  • US Existing Home Sales Change (MoM) declined by 1.0% in December against the previous rise of 0.8%.
  • US Housing Starts (MoM) surpassed expectations in December, reaching 1.46 million compared to the anticipated 1.426 million.
  • US Building Permits for the month increased, rising to 1.495 million, surpassing the market consensus of 1.48 million.
  • US Initial Jobless Claims for the week ending on January 12 decreased to 187,000 from the previous reading of 203,000.

Technical Analysis: Australian Dollar hovers above the psychological level at 0.6550

The Australian Dollar trades near 0.6610 on Monday. In the AUD/USD pair, potential resistance lies around the nine-day Exponential Moving Average (EMA) at 0.6624, followed by a significant level at 0.6650. If the pair surpasses this major level, it may aim for a test of the psychological level at 0.6700. On the downside, immediate support is evident at the psychological level of 0.6600, followed by the 50% retracement level at 0.6568, and then the major support at 0.6550. A breach below the latter could prompt the AUD/USD pair to explore levels around the psychological mark of 0.6500, in conjunction with the 61.8% Fibonacci retracement level at 0.6497.

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 weakest against the Pound Sterling.

USD   -0.11% -0.11% 0.03% 0.14% -0.04% 0.19% 0.01%
EUR 0.11%   0.00% 0.14% 0.25% 0.07% 0.30% 0.13%
GBP 0.11% 0.00%   0.13% 0.25% 0.07% 0.31% 0.12%
CAD -0.03% -0.13% -0.13%   0.12% -0.08% 0.17% -0.01%
AUD -0.14% -0.24% -0.25% -0.10%   -0.17% 0.06% -0.11%
JPY 0.06% -0.07% -0.02% 0.08% 0.19%   0.26% 0.07%
NZD -0.19% -0.31% -0.30% -0.18% -0.06% -0.25%   -0.19%
CHF -0.01% -0.13% -0.12% 0.01% 0.12% -0.08% 0.17%  

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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