- Australian Dollar lost ground as the US Dollar rose on upbeat US CPI numbers.
- Australian ASX 200 Index falls; puts pressure on the AUD.
- US Dollar strengthened on upbeat US Treasury yields.
- Robust US CPI numbers dashed the chances of a Fed rate cut in March.
The Australian Dollar (AUD) makes an effort to retrace its recent losses recorded in the previous session. The decline in the AUD/USD pair was driven by robust US inflation data for January, which dashed hopes of an imminent rate cut by the Federal Reserve (Fed) in March.
Australian Dollar received downward pressure as the S&P/ASX 200 Index tumbled to its lowest levels in three weeks, driven by a selloff in mining and financial stocks following Wall Street’s decline overnight in response to stronger-than-expected US inflation figures.
The US Dollar Index (DXY) remains steady near three-month highs, supported by recent gains, while US yields trade at multi-week highs across the yield curve. Market sentiment has shifted dramatically, with expectations for an unchanged rate next month soaring to 93%, a stark contrast to a month earlier. Investors are now pricing in the possibility of a rate cut by the Fed in June.
Daily Digest Market Movers: Australian Dollar declines after solid US Inflation data
- Stephen Kennedy, the Head of Australia’s Treasury, addressed a parliamentary committee, noting that services inflation is trailing behind goods inflation. He mentioned that services inflation has likely peaked and is expected to decline over the next two years, and he sees no evidence of a wage-price spiral.
- Reserve Bank of Australia (RBA) Governor Michele Bullock stated that the central bank might consider initiating rate cuts even before inflation decelerates to 2.5%. However, she cautioned that the RBA remains receptive to the prospect of further rate hikes.
- RBA’s Head of Economic Analysis, Marion Kohler, emphasized uncertainty regarding current inflation projections for the Australian economy. However, she anticipates that price growth will eventually return to a more moderate level by 2025.
- China’s headline CPI declined by 0.8%, exceeding the anticipated decline of 0.5% and the previous decline of 0.3%.
- US headline Consumer Price Index (CPI) increased by 3.1% in January, exceeding the expected 2.9% but lower than the previous rate of 3.4%.
- US Inflation rose by 0.3% month-over-month, against the expectation of maintaining the previous reading of 0.2%.
- US Core CPI (YoY) remained consistent at 3.9% against the market expectation of a decline to 3.7% in January.
- US Core Inflation (MoM) increased by 0.4% against the 0.3% as expected to be unchanged in January.
Technical Analysis: Australian Dollar hovers around the major level of 0.6450
The Australian Dollar traded near 0.6450 on Wednesday following the next psychological support level of 0.6400. A break below the latter could push the AUD/USD pair to approach the major support level at 0.6350. On the upside, the key resistance appears at the psychological level of 0.6500. A breakthrough above this psychological barrier could influence the AUD/USD pair to reach the 14-day Exponential Moving Average (EMA) at 0.6523 followed by the 23.6% Fibonacci retracement level at 0.6543 and the major level at 0.6550.
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 .
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.03% | -0.09% | -0.05% | -0.15% | -0.16% | -0.25% | -0.12% | |
| EUR | 0.04% | -0.04% | -0.01% | -0.11% | -0.13% | -0.20% | -0.08% | |
| GBP | 0.08% | 0.04% | 0.04% | -0.06% | -0.06% | -0.16% | -0.03% | |
| CAD | 0.05% | 0.01% | -0.04% | -0.10% | -0.11% | -0.20% | -0.08% | |
| AUD | 0.15% | 0.11% | 0.07% | 0.10% | -0.02% | -0.09% | 0.02% | |
| JPY | 0.16% | 0.10% | 0.06% | 0.12% | -0.01% | -0.10% | 0.02% | |
| NZD | 0.25% | 0.21% | 0.16% | 0.20% | 0.11% | 0.08% | 0.15% | |
| CHF | 0.12% | 0.08% | 0.04% | 0.08% | -0.02% | -0.04% | -0.13% |
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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