Australian Dollar improves ahead of Aussie data amid a stable US Dollar

  • Australian Dollar lost ground as the US Dollar rose on upbeat US CPI numbers.
  • Australian ASX 200 Index falls; puts pressure on the AUD.
  • US Dollar strengthened on upbeat US Treasury yields.
  • Robust US CPI numbers dashed the chances of a Fed rate cut in March.

The Australian Dollar (AUD) makes an effort to retrace its recent losses recorded in the previous session. The decline in the AUD/USD pair was driven by robust US inflation data for January, which dashed hopes of an imminent rate cut by the Federal Reserve (Fed) in March.

Australian Dollar received downward pressure as the S&P/ASX 200 Index tumbled to its lowest levels in three weeks, driven by a selloff in mining and financial stocks following Wall Street's decline overnight in response to stronger-than-expected US inflation figures.

The US Dollar Index (DXY) remains steady near three-month highs, supported by recent gains, while US yields trade at multi-week highs across the yield curve. Market sentiment has shifted dramatically, with expectations for an unchanged rate next month soaring to 93%, a stark contrast to a month earlier. Investors are now pricing in the possibility of a rate cut by the Fed in June.

Daily Digest Market Movers: Australian Dollar gains ground amid a stable US Dollar

  • Stephen Kennedy, the Head of Australia's Treasury, addressed a parliamentary committee, noting that services inflation is trailing behind goods inflation. He mentioned that services inflation has likely peaked and is expected to decline over the next two years, and he sees no evidence of a wage-price spiral.
  • Reserve Bank of Australia (RBA) Governor Michele Bullock stated that the central bank might consider initiating rate cuts even before inflation decelerates to 2.5%. However, she cautioned that the RBA remains receptive to the prospect of further rate hikes.
  • RBA's Head of Economic Analysis, Marion Kohler, emphasized uncertainty regarding current inflation projections for the Australian economy. However, she anticipates that price growth will eventually return to a more moderate level by 2025.
  • China’s headline CPI declined by 0.8%, exceeding the anticipated decline of 0.5% and the previous decline of 0.3%.
  • US headline Consumer Price Index (CPI) increased by 3.1% in January, exceeding the expected 2.9% but lower than the previous rate of 3.4%.
  • US Inflation rose by 0.3% month-over-month, against the expectation of maintaining the previous reading of 0.2%.
  • US Core CPI (YoY) remained consistent at 3.9% against the market expectation of a decline to 3.7% in January.
  • US Core Inflation (MoM) increased by 0.4% against the 0.3% as expected to be unchanged in January.

Technical Analysis: Australian Dollar hovers above the major level of 0.6450

The Australian Dollar traded near 0.6450 on Wednesday following the next psychological support level of 0.6400. A break below the latter could push the AUD/USD pair to approach the major support level at 0.6350. On the upside, the key resistance appears at the psychological level of 0.6500. A breakthrough above this psychological barrier could influence the AUD/USD pair to reach the 14-day Exponential Moving Average (EMA) at 0.6523 followed by the 23.6% Fibonacci retracement level at 0.6543 and the major level at 0.6550.

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 Pound Sterling.

USD   0.03% 0.25% -0.10% -0.36% -0.20% -0.41% -0.10%
EUR -0.02%   0.22% -0.12% -0.38% -0.23% -0.43% -0.11%
GBP -0.24% -0.22%   -0.34% -0.59% -0.44% -0.65% -0.33%
CAD 0.10% 0.12% 0.33%   -0.25% -0.10% -0.31% 0.00%
AUD 0.35% 0.38% 0.58% 0.26%   0.15% -0.05% 0.26%
JPY 0.20% 0.21% 0.43% 0.11% -0.17%   -0.21% 0.10%
NZD 0.41% 0.42% 0.66% 0.31% 0.06% 0.21%   0.34%
CHF 0.10% 0.12% 0.33% 0.00% -0.25% -0.10% -0.30%  

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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