Australian Dollar improves to a major level amid a stable US Dollar

  • Australian Dollar recovers intraday losses on improved S&P/ASX 200.
  • Australian Weekly Consumer Confidence remained nearly unchanged at 83.2.
  • China is expected to lift tariffs on Australian wine by the end of March.
  • US Dollar could face a challenge as US yields retrace recent gains.
  • US President Joe Biden will meet the four Congressional leaders to discuss the bipartisan national security supplemental.

The Australian Dollar (AUD) recovers intraday losses on improved S&P/ASX 200 on Tuesday. However, the Australian capital market opened lower, tracking overnight losses on Wall Street but improved on the media news that China could lift the tariffs on Australian wine by the end of March. Declines in property and mining stocks outweigh gains in consumer-related sectors, contributing to overall market pessimism. Additionally, investors are exercising caution ahead of key economic data releases from Australia and the United States (US), seeking insights into the monetary policy outlook for both countries.

Australian Consumer Confidence, as measured by ANZ-Roy Morgan, remained nearly unchanged at 83.2 for the current week. This marks the 56th consecutive week that the index has remained below the threshold of 85. The index sits just 0.4 points below the 2024 weekly average of 83.6. Investors are now looking forward to the release of the Australian Monthly Consumer Price Index on Wednesday and Retail Sales data on Thursday for further insights into the economic landscape.

The US Dollar Index (DXY) remains steady, having stabilized after recent declines despite the uptick in US yields, possibly reflecting improved risk sentiment. The Federal Open Market Committee (FOMC) minutes suggested a reaffirmation of a data-dependent approach by the Federal Reserve (Fed), signaling a more dovish stance that has put pressure on the US Dollar (USD). Investors will closely watch key economic indicators including Gross Domestic Product Annualized (Q4), Core Personal Consumption Expenditures, and the Fed Monetary Policy Report scheduled for later this week.

Daily Digest Market Movers: Australian Dollar recovers as China could lift tariffs on Australian wine

  • Economists at TD Securities have adjusted their forecasts for the Reserve Bank of Australia's (RBA) cash rate decisions. While they still anticipate a total of 100 basis points (bps) in rate cuts throughout the easing cycle, they now expect the first 25 bps cut to occur in November, compared to their previous projection of August.
  • RBA’s Meeting Minutes revealed that the Board deliberated on the possibility of raising rates by 25 basis points (bps) or keeping rates unchanged. While recent data indicated that inflation would return to target within a reasonable timeframe, it was acknowledged that this process would "take some time." Consequently, the board agreed that it was prudent not to rule out another rate hike.
  • It is anticipated that China will lift tariffs on Australian wine by the end of March. These tariffs were imposed by China in retaliation for actions taken by the United States against China during the Trump administration.
  • China's Commerce Ministry stated on Monday, "The US's assertion that China has generated 'overcapacity' is inaccurate, highlighting the unilateral and hegemonic actions of the US."
  • Chinese authorities announced that the Fujian Coast Guard is increasing patrols in waters adjacent to Taiwan's Kinmen islands to effectively uphold operational order in the relevant maritime areas, and ensure the safety of fishermen's lives and property."
  • Economists at Commerzbank have adjusted their forecast, now expecting the first interest rate cut at the Federal Open Market Committee (FOMC) meeting in June instead of May. This adjustment is attributed to the reduced likelihood of a recession. Consequently, they anticipate a less aggressive easing of monetary policy compared to their previous projections. Instead of eight rate cuts, they now anticipate five, with three expected in 2024 and two in 2025.
  • President of the New York Fed, John C. Williams, discussed his perspective on the Fed's interest rate stance during an interview with Axios. He suggested that rate cuts could be on the horizon later this year, but emphasized that they would only occur if deemed appropriate. Williams noted that his outlook on the economy remains largely unchanged following the release of January's economic data.
  • Federal Reserve Governor Christopher J. Waller recently suggested that the Federal Reserve should postpone any rate cuts for at least a few more months to assess whether January's high inflation report was an anomaly.
  • US President Joe Biden will convene a meeting with the four Congressional leaders at the White House on Tuesday. The focus of the discussions will revolve around passing the bipartisan national security supplemental and ensuring the continued operation of the government. With the shutdown deadline looming on Friday, addressing these matters takes on heightened urgency.
  • Santander US Capital Markets suggested in a note, as reported by The Wall Street Journal, that the Federal Reserve's FOMC might postpone rate cuts until after the US election. They anticipate that the US economy and inflation will continue to surpass expectations, which could justify delaying monetary easing.
  • US New Home Sales Change (MoM) grew by 1.5% in January, falling short of the previous growth of 7.2%.
  • US New Home Sales (MoM) came in at 0.661M in January against the expected 0.680M and 0.664 prior.

Technical Analysis: Australian Dollar edges higher to 0.6540

The Australian Dollar trades around 0.6540 on Tuesday followed by psychological support at 0.6500. A break below this psychological support could put prompt the AUD/USD pair to navigate the area around the major support of 0.6450 level and the February’s low at 0.6442. On the upside, the immediate resistance zone appears at the 23.6% Fibonacci retracement at 0.6543 and the major level of 0.6550. A break above the 50-day Exponential Moving Average (EMA) at 0.6572 could lead the pair to test the further resistance zone around the psychological level of 0.6600 and 38.2% Fibonacci retracement at 0.6606.

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   0.00% 0.04% 0.00% -0.08% -0.06% 0.03% -0.01%
EUR 0.00%   0.03% -0.02% -0.09% -0.04% 0.01% -0.01%
GBP -0.03% -0.03%   -0.04% -0.11% -0.08% -0.01% -0.04%
CAD 0.02% 0.00% 0.03%   -0.08% -0.05% 0.04% -0.01%
AUD 0.09% 0.08% 0.11% 0.08%   0.03% 0.10% 0.07%
JPY 0.06% 0.07% 0.08% 0.04% -0.01%   0.07% 0.04%
NZD -0.04% -0.01% -0.01% -0.04% -0.11% -0.09%   -0.01%
CHF 0.01% 0.01% 0.04% 0.03% -0.07% -0.03% 0.03%  

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).


What is the Reserve Bank of Australia and how does it influence the Australian Dollar?

The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “ contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.

How does inflation data impact the value of the Australian Dollar?

While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.

How does economic data influence the value of the Australian Dollar?

Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.

What is Quantitative Easing (QE) and how does it affect the Australian Dollar?

Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.

What is Quantitative tightening (QT) and how does it affect the Australian Dollar?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.

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