- Australian Dollar trades higher on improved risk appetite and hawkish RBA.
- Australian central bank will observe data to evaluate the risks before making future policy decisions.
- US Dollar faces negative sentiment due to speculation on the Fed’s rate cuts in early 2024.
The Australian Dollar (AUD) retraces its recent losses on Thursday after pulling back from a five-month high at 0.6779. The US Dollar (USD) gained ground against the Aussie Dollar in the previous session on the back of improved economic data from the United States (US). Consequently, the AUD/USD pair snapped its five-day winning streak.
Australia’s central bank takes a hawkish stance, as indicated in the Meeting Minutes on Tuesday, providing a boost to the Australian Dollar. The Reserve Bank of Australia (RBA) is expected to carefully scrutinize additional data to evaluate the balance of risks before making future interest rate decisions. According to the World Interest Rate Probability Tool (WIRP), there’s widespread anticipation that the RBA will refrain from a rate cut in February’s policy meeting.
The US Dollar Index (DXY) loses ground on Thursday despite improved US Treasury yields. Additionally, the dovish sentiment surrounding the US Federal Reserve’s (Fed) interest rate trajectory in early 2024 put pressure on the US Dollar. However, Fed officials discouraged premature speculations and urged a cautious approach.
US Existing Home Sales Change showed a monthly rate increase of 0.8% in November, a notable turnaround from the previous decline of 4.1%. CB Consumer Confidence experienced substantial growth in December, marking the most significant increase since early 2021, rising from 101.0 to 110.07. Market participants will likely observe US Gross Domestic Product Annualized (Q3), Initial Jobless Claims, and Philadelphia Fed Manufacturing Survey on Thursday.
Daily Digest Market Movers: Australian Dollar remains bullish on improved risk sentiment
- Westpac Leading Index (MoM) for November improved by 0.01% against the previous reading of flat 0.0%.
- Australia’s preliminary Judo Bank Composite PMI improved to 47.4 from the previous reading of 46.2.
- The Manufacturing PMI registered 47.8, a slight increase from the prior figure of 47.7.
- The Services PMI grew to 47.6 compared to the previous reading of 46.0.
- Australia’s Consumer Inflation Expectations for December eased at 4.5% against the previous figures of 4.9%.
- The People’s Bank of China (PBoC) released its Interest Rate Decision on Wednesday. The Monetary Policy Committee (MPC) kept the benchmark rate unchanged at 3.45%.
- New York Fed President John Williams opposed the speculation surrounding a potential rate cut in March.
- San Francisco Fed President Mary Daly called the predictions on policy stance premature.
- Austan Goolsbee, Chicago Fed President echoed a similar sentiment, cautioning that the market’s optimism for interest rate cuts may have gone beyond realistic expectations.
- US Housing Starts rose to 1.56M, surpassing the market consensus of 1.36M. However, Building Permits declined to 1.46M, slightly below the forecast of 1.47M.
Technical Analysis: Australian Dollar maintains its position below 0.6750 major level
The Australian Dollar trades higher around 0.6740 on Thursday, slightly below the significant level at 0.6750. The prevailing bullish sentiment suggests a potential for the AUD/USD pair to revisit the recent peak at 0.6779 and aim for the key resistance at the psychological level of 0.6800. On the downside, support levels may be identified at the seven-day Exponential Moving Average (EMA) at 0.6707, followed by the psychological level at 0.6700. A breach below this crucial support region could lead the AUD/USD pair towards the 23.6% Fibonacci retracement at 0.6659 before reaching the major zone at 0.6650.
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 New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.03% | 0.07% | -0.02% | -0.11% | -0.42% | 0.06% | -0.06% | |
| EUR | 0.04% | 0.11% | 0.02% | -0.06% | -0.40% | 0.11% | -0.02% | |
| GBP | -0.07% | -0.11% | -0.08% | -0.17% | -0.53% | 0.00% | -0.14% | |
| CAD | 0.03% | -0.02% | 0.10% | -0.07% | -0.43% | 0.09% | -0.04% | |
| AUD | 0.11% | 0.06% | 0.15% | 0.08% | -0.34% | 0.16% | 0.03% | |
| JPY | 0.43% | 0.40% | 0.52% | 0.41% | 0.33% | 0.52% | 0.34% | |
| NZD | -0.05% | -0.11% | 0.00% | -0.09% | -0.17% | -0.51% | -0.14% | |
| CHF | 0.07% | 0.01% | 0.14% | 0.04% | -0.04% | -0.38% | 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.
Source: https://www.fxstreet.com/news/australian-dollar-maintains-its-position-below-a-major-level-post-recent-losses-202312210148