Australian Dollar holds position after daily losses amid risk-off mood, stronger US Dollar

  • Australian Dollar loses ground on risk aversion as traders await Israel’s response to Iran’s attack.
  • Australian currency faces challenges due to differing monetary policy outlooks between the RBA and the Fed.
  • US Dollar received support as stronger-than-expected US Retail Sales figures diminished sentiment regarding early Fed rate cuts.

The Australian Dollar (AUD) extends losses for the third consecutive session on Tuesday, possibly due to the risk aversion as investors cautiously await Israel’s response to Iran’s unprecedented air assault on Saturday. However, the AUD/USD pair pares losses after mixed data from China.

The Australian Dollar faces hurdles amid concerns that the Reserve Bank of Australia (RBA) might need to lower interest rates ahead of the United States (US). According to the Financial Review, the ongoing high inflation in the world's largest economy raises uncertainty about whether the Federal Reserve can take action this year. Traditionally, as the world's most influential central bank due to the scale of the financial markets it oversees, the Fed typically leads global rate-cutting cycles.

The US Dollar Index (DXY) remains on an upward trajectory, likely influenced by the rise in US Treasury yields. The stronger-than-anticipated US Retail Sales data has added to the diminishing sentiment regarding the Federal Reserve's (Fed) potential monetary policy easing, thereby bolstering the US Dollar (USD). Investors are likely to monitor the US housing data slated for release on Tuesday, alongside Fed Chair Jerome Powell's speech at the Washington Forum.

Daily Digest Market Movers: Australian Dollar depreciates on risk aversion

  • Australian labor market data is due on Thursday, including seasonally adjusted Employment Change and Unemployment Rate for March.
  • China’s Gross Domestic Product (GDP) rose by 1.6% QoQ in the first quarter of 2024, against the previous quarter’s increase of 1.0%. GDP year-over-year rose by 5.3%, exceeding the expected 5.0% and 5.2% prior.
  • China’s Industrial Production (YoY) increased by 4.5% in March, against the market expectations of 5.4% and 7.0% prior.
  • Chinese Retail Sales increased by 3.1% in March, as compared to February’s rise of 5.5%. The market was expecting a 4.5% increase.
  • Federal Reserve (Fed) Bank of San Francisco President Mary Daly has emphasized that although there has been significant progress regarding inflation, there is still more to be done. She stressed the necessity of being assured that inflation is heading towards the target before making any decisions.
  • According to the CME FedWatch Tool, the likelihood of interest rates remaining unchanged in the June meeting has been increased to 77.5% from the previous week of 48.5%.
  • US Retail Sales (MoM) increased by 0.7% in March, exceeding the market expectations of 0.3%. The previous reading was revised to 0.9% from 0.6% in February.
  • US Retail Sales Control Group rose by 1.1% against the previous increase of 0.3%.
  • US yields on 2-year and 10-year Treasury bonds stand at 4.92% and 4.61%, respectively, at the time of writing.

Technical Analysis: Australian Dollar could test the psychological support of 0.6400

The Australian Dollar trades around 0.6420 on Tuesday. The 14-day Relative Strength Index (RSI) suggests a bearish sentiment for the AUD/USD pair as it is positioned below the 50 level. Key support appears at the psychological level of 0.6400. A break below this level could exert downward pressure on the AUD/USD pair to approach the major support at 0.6350, followed by November’s low at 0.6318. On the upside, the AUD/USD pair could find the key resistance at the major level of 0.6450, followed by the 23.6% Fibonacci retracement level of 0.6464. A breakthrough above the latter could support the pair in testing the nine-day Exponential Moving Average (EMA) at 0.6499, which is aligned with the psychological level of 0.6500.

AUD/USD: Daily Chart

Australian Dollar price today

The table below shows the percentage change of the Australian Dollar (AUD) against listed major currencies today. The Australian Dollar was the weakest against the US Dollar.

USD   0.10% 0.08% 0.07% 0.36% 0.18% 0.25% 0.24%
EUR -0.09%   -0.01% -0.03% 0.28% 0.10% 0.17% 0.12%
GBP -0.09% 0.03%   0.01% 0.31% 0.14% 0.20% 0.16%
CAD -0.06% 0.04% 0.01%   0.29% 0.12% 0.18% 0.17%
AUD -0.36% -0.28% -0.29% -0.29%   -0.17% -0.10% -0.15%
JPY -0.18% -0.11% -0.12% -0.13% 0.17%   0.05% 0.02%
NZD -0.24% -0.17% -0.17% -0.17% 0.12% -0.06%   -0.03%
CHF -0.23% -0.12% -0.15% -0.14% 0.15% -0.01% 0.04%  

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.


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