Australian Dollar retraces recent gains amid thin trading volumes on New Year Eve
- The Australian Dollar holds losses following China’s NBS Purchasing Managers' Index release on Tuesday.
- China's official Manufacturing PMI slipped to 50.1, with Non-Manufacturing PMI improving to 52.2 in December.
- The US Dollar struggled as Treasury bond yields depreciated by around 2% on Monday.
The Australian Dollar (AUD) remains tepid against the US Dollar (USD) following the release of mixed NBS Manufacturing Purchasing Managers' Index (PMI) data from China on Tuesday. As close trade partners, any fluctuations in China's economy tend to impact Australian markets.
China's official Manufacturing PMI slipped to 50.1 in December, down from 50.3 in the previous reading and below market expectations of 50.3. Meanwhile, the NBS Non-Manufacturing PMI improved significantly, rising to 52.2 in December from November's 50.0 and beating estimates of 50.2.
The recent RBA’s Meeting Minutes suggested that the board had grown more confident about inflation since its previous meeting, though risks persisted. The board emphasized the need for monetary policy to remain "sufficiently restrictive" until there was greater certainty about inflation.
Australian Dollar remains subdued amid light trading on the final day of the year
- The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against its six major peers, remains subdued around 108.00 as traders continue to digest the US Federal Reserve’s (Fed) hawkish pivot.
- The US Dollar faced challenges as US Treasury bond yields depreciated by around 2% on Monday. 2-year and 10-year yields stood at 4.24% and 4.53%, respectively.
- The Federal Reserve signaled a more cautious outlook for additional rate cuts in 2025, marking a shift in its monetary policy stance. This development highlights uncertainties surrounding future policy adjustments amid the anticipated economic strategies of the incoming Trump administration.
- The risk-sensitive Australian Dollar could face challenges due to the heightened geopolitical risks stemming from the prolonged Russia-Ukraine conflict and ongoing tensions in the Middle East.
- The RBA board noted that if future data aligns with or falls below forecasts, it would bolster confidence in inflation and make it appropriate to start easing policy restrictions. However, stronger-than-expected data could require maintaining restrictive policies for a longer period.
- Reserve Bank of Australia Governor Michele Bullock highlighted the continued strength of the labor market as a key reason the RBA has been slower than other nations to commence its monetary easing cycle.
- Traders expressed concerns about President-elect Trump’s economic policies, fearing that tariffs could drive up the cost of living. These concerns were compounded by the Federal Open Market Committee’s (FOMC) recent projections, which indicated fewer rate cuts in 2025, reflecting caution amid persistent inflationary pressures.
Technical Analysis: Australian Dollar hovers below nine-day EMA near 0.6200
AUD/USD trades near 0.6220 on Tuesday, with the daily chart signaling a persistent bearish bias as the pair remains within a descending channel pattern. The 14-day Relative Strength Index (RSI) hovers slightly below the 30-level, suggesting the potential near-term upward correction to dissipate.
On the downside, the AUD/USD pair may navigate the region around the lower boundary of the descending channel near the 0.6060 support level.
The AUD/USD pair faces immediate resistance at the nine-day Exponential Moving Average (EMA) of 0.6243, followed by the 14-day EMA at 0.6271. A more significant hurdle is the descending channel’s upper boundary, around 0.6330.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.04% | -0.01% | -0.31% | -0.02% | 0.18% | 0.29% | -0.01% | |
| EUR | 0.04% | 0.04% | -0.24% | 0.03% | 0.22% | 0.34% | 0.04% | |
| GBP | 0.00% | -0.04% | -0.31% | -0.02% | 0.19% | 0.31% | 0.00% | |
| JPY | 0.31% | 0.24% | 0.31% | 0.32% | 0.49% | 0.60% | 0.34% | |
| CAD | 0.02% | -0.03% | 0.02% | -0.32% | 0.19% | 0.31% | 0.02% | |
| AUD | -0.18% | -0.22% | -0.19% | -0.49% | -0.19% | 0.11% | -0.18% | |
| NZD | -0.29% | -0.34% | -0.31% | -0.60% | -0.31% | -0.11% | -0.29% | |
| CHF | 0.00% | -0.04% | -0.00% | -0.34% | -0.02% | 0.18% | 0.29% |
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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (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.
Author
Akhtar Faruqui
FXStreet
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.
