- Australian Dollar surges as US Dollar loses ground near month lows.
- Australian central bank will evaluate additional data to decide future monetary policy.
- Softer US data reinforces speculation of the Fed’s easing monetary policy in early 2024.
- US GDP Annualized Q3 and Core PCE QoQ eased 4.9% and 2.0%, respectively.
The Australian Dollar (AUD) trades slightly below its recent peak of 0.6802 on Friday, a level not reached in almost five months. The initial surge in the Aussie Dollar was attributed to an enhanced risk appetite in the market coupled with a depreciation of the US Dollar (USD). Additionally, the hawkish sentiment surrounding the Reserve Bank of Australia (RBA) keeps the Australian Dollar stronger.
Australia’s robust inflation and steady housing prices could be factors influencing the Reserve Bank of Australia (RBA) to uphold its hawkish stance. If the global economy gains momentum, especially with potential economic stimulus from China, there is a likelihood that the RBA might continue to raise interest rates. The latest RBA forecasts reaching the upper limit of the 2-3% inflation projection by the end of 2025, it seems the RBA may still have room for further consideration.
The Reserve Bank of Australia (RBA), as highlighted in its recent Meeting Minutes, emphasized the importance of thoroughly examining additional data to assess the balance of risks before deciding on future interest rates. The World Interest Rate Probability Tool (WIRP) reflects a widespread expectation that the RBA is likely to abstain from a rate cut in the upcoming February policy meeting.
The US Dollar Index (DXY) faces downward pressure as speculations about potential easing by the US Federal Reserve (Fed) gain traction. These heightened expectations stem from the aftermath of the Fed’s recent dovish stance in its latest meeting. Despite the mounting speculations, Fed officials have discouraged premature conclusions, advocating for a cautious approach.
The Treasury bond yields in the United States (US) initially saw a decline in the previous session but managed to recover. As of now, the 2-year and 10-year rates stand at 4.34% and 3.88%, respectively, impacting the appeal of the USD. Additionally, the fluctuation in US economic data on Thursday might have added pressure to the Greenback.
US Bureau of Economic Analysis (BEA) reveals that Gross Domestic Product Annualized (Q3) grew at a rate of 4.9%, slightly below the expected consistency of 5.2%. Additionally, Core Personal Consumption Expenditures (QoQ) decreased to 2.0% from the previous 2.3%. On the employment front, Initial Jobless Claims for the week ending on December 15 came in at 205K, surpassing the expected 215K but still close to the prior figure of 203K. On Friday, a slew of data releases, along with Core Personal Consumption Expenditures – Price Index data, and Michigan Consumer Sentiment Index will be eyed.
Daily Digest Market Movers: Australian Dollar rises on improved risk appetite, hawkish RBA
- RBA Private Sector Credit (MoM) demonstrated a 0.4% increase in November, surpassing the previous rise of 0.3%. However, the Year-over-Year data indicated a decrease to 4.7%, compared to the previous 4.8% rise.
- 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.
- 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 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.
- 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 hovers below 0.6800 lined up with a five-month high
The Australian Dollar trades below the psychological resistance at 0.6800 and a five-month high at 0.6802 on Friday. The prevailing bullish sentiment suggests a potential for the AUD/USD pair to surpass the recent peak and aim for the key resistance at the major level of 0.6850. On the downside, support levels would be identified at the major level at 0.6750 before the seven-day Exponential Moving Average (EMA) at 0.6740. A breach below this crucial support region could lead the AUD/USD pair towards the psychological support at 0.6700 followed by the 23.6% Fibonacci retracement at 0.6679.
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.04% | -0.04% | -0.01% | 0.17% | 0.29% | 0.12% | 0.02% | |
| EUR | -0.04% | -0.07% | -0.06% | 0.14% | 0.27% | 0.09% | -0.01% | |
| GBP | 0.05% | 0.07% | 0.03% | 0.22% | 0.32% | 0.15% | 0.07% | |
| CAD | 0.00% | 0.06% | -0.04% | 0.19% | 0.32% | 0.13% | 0.03% | |
| AUD | -0.17% | -0.13% | -0.20% | -0.19% | 0.12% | -0.04% | -0.14% | |
| JPY | -0.29% | -0.27% | -0.31% | -0.29% | -0.12% | -0.17% | -0.26% | |
| NZD | -0.13% | -0.07% | -0.15% | -0.14% | 0.06% | 0.16% | -0.08% | |
| CHF | -0.05% | 0.02% | -0.07% | -0.03% | 0.14% | 0.28% | 0.11% |
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-near-a-five-month-high-202312220153