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Australian Dollar remains calm near the psychological level amid a stable US Dollar

  • Australian Dollar recovers its recent losses despite weaker Aussie consumer inflation data.
  • Australian Monthly CPI (YoY) reduced to 4.3% in November, against the market expectation of 4.4%.
  • Chinese Defense Ministry has urged the United States to halt the arming of Taiwan.
  • US Dollar gained on risk-off sentiment despite the downbeat US bond yields.

The Australian Dollar (AUD) retraces its recent losses despite a softer-than-expected Aussie consumer inflation data released on Wednesday. However, the AUD/USD pair registered losses in the previous session as the US Dollar (USD) improved on risk-off sentiment.

Australia's economic indicators are providing a mixed picture, with the Monthly Consumer Price Index (YoY) for November showing a slight reduction to 4.3%, falling slightly short of the market expectation of 4.4% from the previous figure of 4.9%. This indicates a modest easing in year-on-year inflationary pressures in the country.

Aussie Retail Sales (MoM) showed a rise on Tuesday, signaling increased consumer spending. Additionally, the monthly Building Permits data grew, contrary to the expected decline. These positive trends in retail sales and building permits suggest some resilience in the domestic economy.

Thursday's release of Australian Trade Balance data for December is anticipated to show an increase from 7,129 million to 7,500 million. A higher trade balance could indicate improved export performance, contributing positively to the overall economic outlook.

Chinese Defense Ministry has urged the United States to cease providing support to provocations by certain countries. China is calling on the US to adhere to the "One China Principle" and to halt the arming of Taiwan. Furthermore, the ministry is urging the US to strictly restrain front-line forces and refrain from hyping up security issues.

The US Dollar Index (DXY) displays a sideways movement after experiencing gains despite weaker US Treasury yields on Tuesday. However, the risk-on sentiment triggered by the Federal Reserve's (Fed) members' remarks speculating interest rate cuts by the end of 2024 might have capped the profits of the US Dollar.

Traders are eagerly awaiting the release of December’s Consumer Price Index (CPI) data from the United States on Thursday. This economic indicator is crucial for gauging inflationary pressures and can significantly influence market expectations regarding the Fed's monetary policy stance.

Daily Digest Market Movers: Australian Dollar faces challenges on risk-off sentiment

  • Australia’s Bureau of Statistics revealed the seasonally adjusted Retail Sales (MoM) for November, which rose by 2.0% instead of the expected 1.2%, swinging from the previous 0.2% decline.
  • Australia’s Building Permits (MoM) came to 1.6% from 7.5% prior against the expected decline of 2.0%.
  • Chinese wealth manager Zhongzhi Enterprise Group has filed for bankruptcy liquidation, facing a staggering $64 billion in liabilities.
  • Atlanta Fed President Raphael W. Bostic mentioned on Monday that inflation has declined more than initially anticipated and expressed the view of expecting two quarter-point cuts by the end of 2024. Bostic conveyed comfort with the current rate level and emphasized the importance of allowing the Fed's tight policy time to work on cooling off inflation.
  • US Fed Governor Michelle W. Bowman expressed that inflation could fall further with the policy rate held steady for some time. Bowman said that the current policy stance appears sufficiently restrictive, but it might eventually become appropriate to lower the Fed's policy rate if inflation falls closer to the 2% target.
  • US Nonfarm Payrolls rose to 216K in December, showing an improvement from the 173K reported in November. This figure surpassed the market expectation, which anticipated a rise of 170K.
  • US Average Hourly Earnings (YoY) improved to 4.1% from 4.0% prior. Meanwhile, the monthly index remained consistent at 0.4% against the expected decline of 0.3%.
  • US ISM Services Purchasing Managers Index (PMI) came in at 50.6 against the expected 52.6 and 52.7 prior. While the Services Employment Index reduced to 43.3 from the previous reading of 50.7.

Technical Analysis: Australian Dollar hovers near 0.6700 psychological level

The Australian Dollar traded near 0.6690 on Wednesday below a psychological resistance level of 0.6700 followed by the seven-day Exponential Moving Average (EMA) of 0.6724. A break above the latter could approach the major level at the 0.6750 level. On the downside, the 0.6650 level could act as a major support followed by the 38.2% Fibonacci retracement level at 0.6637. A collapse below the level could lead the AUD/USD pair to explore the region around the psychological level at 0.6600.

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 Japanese Yen.

 USDEURGBPCADAUDJPYNZDCHF
USD 0.00%0.11%-0.03%-0.25%0.28%0.01%0.02%
EUR0.00% 0.11%-0.03%-0.24%0.28%0.00%0.04%
GBP-0.11%-0.10% -0.14%-0.34%0.18%-0.10%-0.06%
CAD0.03%0.04%0.14% -0.21%0.33%0.04%0.07%
AUD0.24%0.24%0.35%0.19% 0.51%0.24%0.26%
JPY-0.28%-0.27%-0.17%-0.32%-0.52% -0.29%-0.24%
NZD-0.01%0.00%0.10%-0.04%-0.24%0.28% 0.01%
CHF-0.04%-0.01%0.09%-0.05%-0.27%0.26%-0.01% 

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.

Author

Akhtar Faruqui

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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