- Australian Dollar continues its winning streak amid a prevailing risk-on sentiment.
- Australian Central Bank is expected to reduce the policy rate after the softer Consumer Confidence and Employment Change figures.
- AUD could find support as the domestic share market surges following a rally in the US markets on Friday.
- PBoC keeps its Loan Prime Rate (LPR) steady at 3.45% and 4.20% for the one-year and the five years, respectively.
- US Dollar could draw support as a safe-haven status while the trade disruption threat escalates in the Red Sea.
The Australian Dollar (AUD) hovers around a psychological level at 0.6600 on Monday amid market uncertainty driven by discussions between the United States (US) and the United Kingdom (UK) on intensifying actions against Iran-backed Houthi terrorists in Yemen. Nevertheless, the AUD/USD pair finds some uplift from a subdued US Dollar (USD), influenced by a reduction in long-term US Treasury yields.
Australia’s dollar faces a setback amidst speculation about potential early interest rate cuts by the Reserve Bank of Australia (RBA). This speculation is fueled by the latest subdued Aussie Consumer Confidence and Employment Change figures. However, the AUD could cheer the surge in the domestic share market, mirroring a rally in the US that propelled the S&P 500 and the Nasdaq to new records on Friday. This surge was driven by expectations that the US Federal Reserve (Fed) is poised to lower interest rates later in the year. Furthermore, optimism was fueled by the projection from the world’s largest contract chipmaker, Taiwan Semiconductor Manufacturing, indicating a forecast of more than 20% revenue growth in 2024, which had a positive impact on global stocks.
The People’s Bank of China has decided to keep 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 period and 4.20% for the five-year period.
The US Dollar Index (DXY) seems to continue its losing streak. However, the US Dollar could find some support due to concerns about maritime trade disruption in the Red Sea. The US and the UK are looking to intensify their campaign without inciting a broader conflict with Iran. More ships are diverting away from the Suez Canal and the Red Sea. Shipping vessels are assessing the risks associated with navigating the Red Sea, as insurance costs rise. Opting for the alternative route around the southern tip of Africa may increase delivery times, shipping costs, and inflation. This situation could enhance risk aversion sentiments, leading traders to seek the safe-haven US Dollar, consequently exerting downward pressure on the AUD/USD pair.
San Francisco Fed President Mary Daly expressed her belief on Friday that the central bank still has significant work to accomplish in bringing inflation back down to the 2.0% target. She emphasized that it is premature to consider interest-rate cuts as an imminent measure. Atlanta Fed President Raphael Bostic reiterated his position on expectations for rate cuts ahead of the Fed entering the “blackout” period before the next rate meeting scheduled for January 31. Bostic emphasized his openness to adjusting his outlook on the timing of rate cuts and highlighted that the Fed remains data-dependent.
Daily Digest Market Movers: Australian Dollar rises on weaker US Dollar
- Australia’s Consumer Inflation Expectations remained steady at 4.5% in January.
- Aussie seasonally adjusted Unemployment Rate held firm at 3.9% in line with expectations for December.
- Australian Employment Change decreased by 65.1K, contrary to the anticipated increase of 17.6K.
- The preliminary US Michigan Consumer Sentiment Index rose to 78.8 in January from 69.7 prior, exceeding the expected figure of 70.
- US Existing Home Sales Change (MoM) declined by 1.0% in December against the previous rise of 0.8%.
- US Housing Starts (MoM) surpassed expectations in December, reaching 1.46 million compared to the anticipated 1.426 million.
- US Building Permits for the month increased, rising to 1.495 million, surpassing the market consensus of 1.48 million.
- US Initial Jobless Claims for the week ending on January 12 decreased to 187,000 from the previous reading of 203,000.
Technical Analysis: Australian Dollar hovers above the psychological level at 0.6550
The Australian Dollar trades near 0.6610 on Monday. In the AUD/USD pair, potential resistance lies around the nine-day Exponential Moving Average (EMA) at 0.6624, followed by a significant level at 0.6650. If the pair surpasses this major level, it may aim for a test of the psychological level at 0.6700. On the downside, immediate support is evident at the psychological level of 0.6600, followed by the 50% retracement level at 0.6568, and then the major support at 0.6550. A breach below the latter could prompt the AUD/USD pair to explore levels around the psychological mark of 0.6500, in conjunction with the 61.8% Fibonacci retracement level at 0.6497.
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 strongest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.13% | -0.13% | -0.03% | -0.08% | -0.18% | -0.15% | -0.08% | |
| EUR | 0.12% | -0.01% | 0.09% | 0.04% | -0.06% | -0.02% | 0.05% | |
| GBP | 0.13% | 0.00% | 0.09% | 0.05% | -0.04% | 0.00% | 0.05% | |
| CAD | 0.03% | -0.09% | -0.10% | -0.05% | -0.13% | -0.10% | -0.04% | |
| AUD | 0.08% | -0.04% | -0.05% | 0.05% | -0.09% | -0.05% | 0.01% | |
| JPY | 0.17% | 0.04% | 0.08% | 0.13% | 0.09% | 0.05% | 0.09% | |
| NZD | 0.14% | 0.00% | 0.00% | 0.09% | 0.05% | -0.04% | 0.05% | |
| CHF | 0.08% | -0.05% | -0.05% | 0.04% | -0.01% | -0.10% | -0.07% |
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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