Australian Dollar depreciates amid an improved US Dollar ahead of US GDP Annualized

  • Australian Dollar loses ground in response to cooler-than-expected inflation data.
  • Australian Consumer Price Index was unchanged at 3.4% for January, against the expected 3.5%.
  • RBNZ held the OCR unchanged at 5.5% in its February monetary policy meeting.
  • The US Dollar maintains its position ahead of the US GDP Annualized on Wednesday.

The Australian Dollar (AUD) faces challenges following the release of cooler-than-anticipated Monthly Consumer Price Index (CPI) data from Australia on Wednesday. Furthermore, the decline in the S&P/ASX 200, which followed subdued price action on Wall Street overnight, added to market uncertainty ahead of the release of a series of economic data from the United States (US).

Australian Bureau of Statistics showed no change in the price of a fixed basket of goods and services acquired by household consumers. The Monthly Consumer Price Index (CPI) was unchanged at 3.4% for January, which was below market expectations of 3.5%. Investors are now turning their attention to the release of Australian Retail Sales data on Thursday for additional insights into the economic outlook.

The US Dollar Index (DXY) maintains stability as investors await the release of the preliminary Gross Domestic Product Annualized (Q4) from the United States, scheduled for Wednesday. Market expectations anticipate the GDP to remain consistent at 3.3% in the fourth quarter of 2023. The Federal Reserve (Fed) has indicated caution regarding hastily reducing rates, leading to a reduced likelihood of any rate cut in March, which puts downward pressure on the US Dollar (USD).

Daily Digest Market Movers: Australian Dollar depreciates on cooler Aussie inflation data

  • Australian Construction Work Done increased by 0.7% in the fourth quarter of 2023, against the expected 0.8% and 1.3% prior.
  • ANZ-Roy Morgan Australian Consumer Confidence is 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.
  • The Reserve Bank of New Zealand (RBNZ) decided to hold the Official Cash Rate (OCR) unchanged at 5.5%, as widely expected in its February monetary policy meeting.
  • While recent data indicated that inflation would return to target within a reasonable timeframe, RBA’s Meeting Minutes revealed that the Board deliberated on the possibility of raising rates by 25 basis points (bps) or keeping rates unchanged.
  • 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.
  • 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.
  • As per the CME FedWatch Tool, the odds for March rate cuts have dropped to 1.0%, with the likelihood of a cut down in May and June to 21% and 49.8%, respectively.
  • According to reports, US House Speaker James Michael Johnson has informed the White House of his willingness to adjust the two funding deadlines to March 8 and March 22. Currently, funding is set to expire for four bills on March 1, and for eight bills on March 8.
  • US Housing Price Index (MoM) increased by 0.1% in December, falling short of the 0.3% expected and 0.4% prior.
  • US Durable Goods Orders ex Transportation contracted by 0.3% in January, compared to the expected rise of 0.2% and the previous decline of 0.1%.
  • US Durable Goods Orders ex Defense (Jan) reduced by 7.3% against the previous increase of 0.1%.
  • US Durable Goods Orders decreased by 6.1% against the market expectation of a 4.5% decrease and a previous decrease of 0.3%.
  • 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 moves below the major level of 0.6550

The Australian Dollar trades around 0.6520 on Wednesday with psychological support seen at 0.6500. A breach below this level could potentially prompt the AUD/USD pair to target the area around the major support level of 0.6450 and February’s low at 0.6442. Conversely, on the upside, the immediate resistance zone is observed around the 23.6% Fibonacci retracement at 0.6543 and the major level of 0.6550. A breakout above this resistance zone may lead the AUD/USD pair to test further barriers, including the 50-day Exponential Moving Average (EMA) at 0.6571. Subsequently, additional resistance zones lie around the psychological level of 0.6600 and the 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 weakest against the US Dollar.

USD   0.09% 0.13% 0.10% 0.40% 0.08% 0.95% 0.14%
EUR -0.09%   0.03% 0.00% 0.32% -0.01% 0.86% 0.05%
GBP -0.12% -0.03%   -0.02% 0.30% -0.04% 0.82% 0.02%
CAD -0.10% -0.03% 0.03%   0.30% -0.02% 0.85% 0.06%
AUD -0.42% -0.32% -0.29% -0.31%   -0.33% 0.54% -0.27%
JPY -0.09% -0.02% 0.05% 0.01% 0.32%   0.87% 0.05%
NZD -0.93% -0.86% -0.83% -0.86% -0.54% -0.88%   -0.81%
CHF -0.14% -0.03% 0.00% -0.04% 0.26% -0.05% 0.81%  

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.

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