- Australian Dollar faced challenges as investors returned to the US Dollar.
- Australian economic data will be crucial for RBA’s policy-tightening decision.
- RBA internal documents mentioned pressure on domestic tourism and the cost of living.
- A Chinese official has urged Taiwan’s people to make a “correct choice” in the January 13 presidential and parliamentary elections.
- Traders reconsider the possibility of rate cuts by the Fed in the first quarter of 2024.
The Australian Dollar (AUD) seems to continue the losing streak on Wednesday amid a tepid US Dollar (USD). The commodity-linked Aussie Dollar (AUD) faces downward pressure following the indications of sluggish global growth at the close of 2024, prompting investors to turn back to the USD. However, market players are now re-evaluating their aggressive bets on imminent rate cuts by the Federal Reserve (Fed) anytime soon. However, the positive surprise in China’s manufacturing data might have potentially limited the losses of the AUD.
Australia’s economic data will play a pivotal role, especially with the Reserve Bank of Australia (RBA) emphasizing the significance of scrutinizing additional data to assess risk balance before making decisions on future interest rates. The recent release of the Judo Bank Manufacturing PMI on Tuesday indicated a softening in economic activity. The upcoming release of Composite and Services PMI data on Friday is highly anticipated to fall below the 50 reading, suggesting a potential contraction in these sectors.
The Australian Dollar could exhibit resilience, buoyed by persistent inflation and housing prices. The market expectations lean towards the RBA refraining from monetary policy tightening in the upcoming February meeting, which could contribute to the AUD’s stability.
RBA’s internal documents, as reported by Bloomberg, highlight the impact of rising interest rates on households and businesses. The documents reveal a slip in domestic tourism demand from previously high levels, indicating a response to the increased cost of borrowing. Additionally, consumers are reported to be trading down to more affordable products or reducing their overall purchases due to cost-of-living pressures. On a somewhat positive note, the documents suggest that private sector wage growth has stabilized at around 4.0%, providing a snapshot of the economic dynamics within Australia. Moreover, Australian Prime Minister Anthony Albanese, in a press conference, announced that he has directed Treasury and Finance to explore measures that can alleviate the financial burden on families in terms of cost of living without exerting additional pressure on inflation.
The characterization of the January 13 presidential and parliamentary elections by China as a choice between war and peace could add to the geopolitical tensions in the region. A senior Chinese official has urged Taiwan’s people to make a “correct choice,” hinting at the potential consequences based on election outcomes. Any escalation of tensions between China and Taiwan has the potential to impact risk sentiment and exert pressure on currency pairs like AUD/USD.
The US Dollar Index (DXY) could persist in its upward trajectory, propelled by enhanced US Treasury yields. However, the S&P Global Manufacturing PMI posted a lower-than-expected figure of 47.9, diverging from the anticipated consistency at 47.2.
Investors will likely observe US data on Wednesday, including the December ISM Manufacturing PMI, November JOLTS Job Openings, and the Federal Open Market Committee (FOMC) Minutes.
The FOMC Minutes could hold relevance following Chairman Jerome Powell’s mention of potential rate cuts in the aftermath of the latest Federal Reserve (Fed) monetary policy decision.
Daily Digest Market Movers: Australian Dollar faces challenges on improved US Dollar Sentiment
- Australia’s Judo Bank Manufacturing PMI indicated a modest contraction in manufacturing activity, declining to 47.6 in December from the previous reading of 47.8.
- China’s NBS Manufacturing PMI for December reduced to the reading of 49.0 from the previous 49.4 figure. The market expectation was an increase to 49.5. While NBS Non-Manufacturing PMI improved to 50.4 from the 50.2 prior but fell short of the 50.5 expected.
- China’s Caixin Manufacturing Purchasing Managers Index (PMI) improved to a reading of 50.8, surpassing both the market consensus of 50.4 and the previous reading of 50.7.
- The Chicago Purchasing Managers Index reduced to 46.9 in December from the previous 55.8.
Technical Analysis: Australian Dollar stays above the major support at 0.6750
The Australian Dollar trades near 0.6760 on Wednesday. The psychological level at 0.6800 could act as a key resistance following the major level at 0.6850. On the downside, the AUD/USD pair could find a key support at the 0.6750 major level followed by the 21-day Exponential Moving Average (EMA) at 0.6733 and the 23.6% Fibonacci retracement level at 0.6725. A breach below the latter could put pressure on the AUD/USD pair to navigate the psychological support level at 0.6700 following the 38.2% Fibonacci retracement level at 0.6637.
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 New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.15% | -0.11% | 0.03% | 0.10% | -0.15% | -0.18% | -0.07% | |
| EUR | 0.16% | 0.04% | 0.18% | 0.25% | 0.01% | -0.03% | 0.08% | |
| GBP | 0.10% | -0.04% | 0.14% | 0.21% | -0.05% | -0.08% | 0.04% | |
| CAD | -0.03% | -0.18% | -0.14% | 0.06% | -0.17% | -0.21% | -0.09% | |
| AUD | -0.10% | -0.23% | -0.21% | -0.07% | -0.24% | -0.28% | -0.16% | |
| JPY | 0.15% | -0.02% | 0.02% | 0.18% | 0.24% | -0.05% | 0.08% | |
| NZD | 0.18% | 0.04% | 0.08% | 0.23% | 0.29% | 0.04% | 0.12% | |
| CHF | 0.08% | -0.07% | -0.04% | 0.09% | 0.17% | -0.08% | -0.12% |
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).
RBA FAQs
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 “..to 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.
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.
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.
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.
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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