- Australian Dollar loses ground as the US Dollar attempts to recover recent losses.
- Australia’s inflation is likely to stay above the RBA’s target range of 2.0–3.0%.
- US Dollar faced downward pressure despite the upbeat US PMI data.
- US GDP Annualized (Q4) is expected to print a reading of 2.0% against 4.9% prior.
The Australian Dollar (AUD) loses its ground for the second successive day on Thursday. The AUD/USD pair encountered downward pressure following the release of positive S&P Global Purchasing Managers Index (PMI) data from the United States (US) on Wednesday. The upbeat data could decrease the probability of rate cuts by the Federal Reserve (Fed) in March, prompting a decline in the AUD/USD pair. Additionally, according to the CME’s FedWatch tool, market-wide bets on a March rate cut from the Fed have now dropped to below 40%, a significant decline from around 80% recorded just a month ago.
Australia’s Dollar experienced a decline, despite the release of improved preliminary Purchasing Managers Index (PMI) data from Australia on Wednesday. The Reserve Bank of Australia’s (RBA) Bulletin indicates that over the past six months, businesses have generally anticipated a moderation in their price growth, with the expectation that, on average, prices will stay above the RBA’s inflation target range of 2.0–3.0%. The Bulletin also notes that slower growth in demand and increased competition are anticipated factors that will contribute to a further deceleration in the growth of firms’ prices in the upcoming quarters.
The US Dollar Index (DXY) makes efforts to recover from recent losses, supported by improved US Treasury yields. However, the US Dollar (USD) faces challenges due to a risk-on market sentiment ahead of the Federal Reserve’s (Fed) interest rate decision on January 31. Investors will likely watch the preliminary US Gross Domestic Product Annualized scheduled for release on Thursday, which is anticipated to print a reading of 2.0% in the fourth quarter as compared to the previous reading of 4.9%. This data will provide insights into the overall economic performance and could influence market expectations regarding the Fed’s monetary policy stance.
Daily Digest Market Movers: Australian Dollar declines after improved US PMI
- Australia’s Manufacturing PMI increased from 47.6 to 50.3, showcasing improvement. Services PMI also saw an uptick, rising from 47.1 to 47.9. The Composite PMI registered an increase, reaching 48.1 compared to December’s 46.9.
- Australia’s Westpac Leading Index (MoM) declined by 0.03% in December against November’s growth of 0.07%.
- National Australia Bank’s Business Conditions inched down to the reading of 7 in December from 9 prior.
- National Australia Bank’s Business Confidence improves to -1 from the previous figure of -9.
- Australia’s Consumer Inflation Expectations remained steady at 4.5% in January.
- The Chair of Australia’s sovereign wealth fund Peter Costello commented that inflation in Australia is showing early signs of moderation. However, Costello emphasizes that there is still a considerable distance to cover to bring prices back within the RBA’s target band.
- The People’s Bank of China keeps its Loan Prime Rate (LPR) steady for both the one-year and five-year terms. The rate remains at 3.45% for the one year and 4.20% for the five years.
- US S&P Global Manufacturing PMI climbed to an 11-month high of 50.3 in January against the forecast of remaining consistent at 47.9.
- US Services PMI rose to 52.9 against the expected reading of 51 and 51.4 prior. While Composite PMI increased to 52.3 from the previous reading of 50.9.
- US Conference Board has reported a slight improvement in the Leading Economic Index for December, moving from -0.5% in November to -0.1% in December. This surpassed expectations for an improvement to -0.3%.
- The preliminary US Michigan Consumer Sentiment Index rose to 78.8 in January from 69.7 prior, exceeding the expected figure of 70.
Technical Analysis: Australian Dollar maintains its position below 0.6600
The Australian Dollar trades around 0.6570 on Thursday, with immediate resistance seen at the psychological level of 0.6600, which aligns with the 23.6% Fibonacci retracement level at 0.6606, followed by the 14-day Exponential Moving Average (EMA) at 0.6617. A decisive move above this resistance zone could potentially propel the AUD/USD pair toward the major barrier at 0.6650. On the downside, the pair might revisit the weekly low at 0.6551, coinciding with the significant level at 0.6550. If this support is breached, the pair could face further downside pressure, potentially retesting the monthly low at 0.6524.
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 Canadian Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.03% | 0.03% | -0.04% | -0.01% | 0.08% | -0.04% | 0.16% | |
| EUR | -0.03% | 0.01% | -0.07% | -0.05% | 0.05% | -0.09% | 0.13% | |
| GBP | -0.05% | -0.02% | -0.09% | -0.07% | 0.03% | -0.10% | 0.11% | |
| CAD | 0.05% | 0.08% | 0.08% | 0.03% | 0.13% | 0.00% | 0.21% | |
| AUD | 0.03% | 0.04% | 0.04% | -0.03% | 0.11% | -0.03% | 0.17% | |
| JPY | -0.08% | -0.05% | -0.02% | -0.13% | -0.12% | -0.13% | 0.09% | |
| NZD | 0.08% | 0.07% | 0.09% | 0.00% | 0.03% | 0.12% | 0.21% | |
| CHF | -0.17% | -0.14% | -0.14% | -0.21% | -0.17% | -0.08% | -0.21% |
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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