The final reading of Australia's Judo Bank Services Purchasing Managers Index (PMI) improved to 54.4 in March from the previous reading of 53.5, the latest data published by Judo Bank and S&P Global showed on Thursday.
The Judo Bank Australian Composite PMI rose to 53.3 in March versus 52.4 in the previous reading.
Additional takeaways
“Output index rising to a new cyclical high of 54.4. This is the fourth consecutive month of improvement, with the services output index increasing by 8.4 points, the largest gain in the series outside of recovery from lockdowns.”
“Services output index is now above its long-run average level of 51.7.”
“March 2024 reading is the highest since April 2022, when the monetary policy tightening cycle commenced.”
“Outstanding Business Index rose to its highest level since the Reserve Bank of Australia started raising interest rates in May 2022.”
“Other activity indicators in the survey were down slightly in March, but remained well above the neutral 50 index level.”
“Cost pressures remain elevated, although there are some signs of a gradual easing over the past six months.”
“Input price index fell slightly to 61.5, the lowest since 2021, but not much lower than the average reading of 62.8 seen through the second half of 2023.”
“Prices Charged Index remained unchanged at 55.0 in March, a little higher than the average over the past quarter and broadly in line with index readings of the past year.”
Market reaction
At the press time, the AUD/USD pair was up 0.01% on the day to trade at 0.6565.
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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