Australian Dollar inches lower amid firmer US Dollar, ISM Services PMI awaited


  • Australian Dollar faced challenges due to the lower ASX 200 Index on Wednesday.
  • Australian Industry Group Industry Index improved to a reading of -5.3 from -14.9 prior.
  • China's Services PMI improved to 52.7 in March, compared with the previous reading of 52.5.
  • US Dollar could receive downward pressure following dovish remarks from Fed officials.

The Australian Dollar (AUD) seems to retrace its recent gains on Wednesday. However, the US Dollar (USD) experienced depreciation due to downward pressure on US Treasury yields, consequently providing support to the AUD/USD pair. Additionally, the decline in the ASX 200 Index contributes to pressure on the AUD.

The Australian Industry Group (AiG) Industry Index showed improvement in February, rising to a reading of -5.3 from the previous -14.9. Similarly, the AiG Manufacturing PMI came in at -7, compared to the prior reading of -12.6. According to Westpac's summary of the Reserve Bank of Australia (RBA) March meeting minutes, the current cash rate level is considered suitable for the present circumstances, although conditions may change in the future.

The US Dollar Index (DXY) encounters obstacles following dovish remarks from Federal Reserve (Fed) officials. Cleveland Fed President Loretta Mester indicated on Tuesday her anticipation of rate cuts later this year. Concurrently, San Francisco Fed President Mary Daly expressed her view that three rate cuts in 2024 appear "reasonable," contingent upon further convincing evidence to solidify such a decision.

Daily Digest Market Movers: Australian Dollar depreciates on weaker ASX 200

  • AiG Construction PMI posted a reading of -12.9 in February against the previous -18.4 reading.
  • Australia’s TD Securities Inflation (YoY) came in at 3.8% in March, against the previous increase of 4.0%.
  • Melbourne Institute's Monthly Inflation Gauge increased by 0.1% in March, following a decrease of 0.1% in the previous month.
  • ANZ Job Advertisements declined by 1.0% in March, compared to the previous decline of 2.1%.
  • RBA March minutes showed that the board did not contemplate the option of raising interest rates. They unanimously agreed that it was challenging to definitively predict future changes in the cash rate. While the economic outlook remained uncertain, the risks appeared to be generally balanced. The board acknowledged that it would require "some time" before they could express confidence in inflation returning to the target level.
  • On Monday, China's Caixin Manufacturing PMI came in at 51.1, against the expected 51.0 and 50.9 prior.
  • China's National Bureau of Statistics (NBS) announced on Sunday that the monthly NBS Manufacturing PMI rose to 50.8 in March from 49.1 in the prior month. Additionally, the NBS Non-Manufacturing PMI increased to 53.0 in March from 51.4 in February.
  • US President Joe Biden engaged in a phone conversation with Chinese leader Xi Jinping sometime after November. During the call, the two leaders had an open and constructive dialogue covering various bilateral, regional, and global topics, addressing both areas of collaboration and points of divergence.
  • Treasury Secretary Janet Yellen is set to visit China this week, where she will hold meetings with China's Finance Minister, as well as engage with economists, students, and members of the business community.
  • US ISM Manufacturing PMI indicated a surprise expansion in March, as the index climbed to 50.3 in March from February's 47.8, surpassing expectations of 48.4. This reading marked the highest level observed since September 2022.
  • US ISM Manufacturing Prices Paid increased to 55.8 in March, compared to the expected 52.6 and 52.5 prior.

Technical Analysis: Australian holds position above psychological level of 0.6500

The Australian Dollar hovers around 0.6510 on Wednesday. Immediate support is seen around the psychological level of 0.6500. A breach beneath this mark may lead the AUD/USD pair towards the vicinity of March’s low at 0.6477 and the significant level of 0.6450. Conversely, key resistance is noted at the 23.6% Fibonacci retracement level of 0.6525, followed by the 14-day Exponential Moving Average (EMA) at 0.6530. Additional resistance is situated at the major level of 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 weakest against the New Zealand Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.03% 0.08% 0.09% 0.06% 0.12% -0.02% 0.15%
EUR -0.03%   0.05% 0.06% 0.04% 0.10% -0.04% 0.12%
GBP -0.08% -0.05%   0.01% -0.02% 0.04% -0.11% 0.07%
CAD -0.08% -0.06% -0.01%   -0.03% 0.03% -0.10% 0.06%
AUD -0.07% -0.04% 0.01% 0.03%   0.06% -0.07% 0.09%
JPY -0.12% -0.09% -0.06% -0.02% -0.06%   -0.14% 0.03%
NZD 0.02% 0.04% 0.10% 0.10% 0.08% 0.13%   0.17%
CHF -0.14% -0.12% -0.07% -0.06% -0.08% -0.02% -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

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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