- Australian Dollar surges to four-month highs as US Dollar loses ground after Fed decision.
- Australia’s Consumer Expectations reduced to 4.5% and Employment Change rose substantially to 61.5K.
- Fed kept interest rates unchanged at 5.5% and investors expect three rate cuts for 2024.
The Australian Dollar (AUD) extends its gains on the second consecutive day on Thursday and delivers its strongest performance in four months after moderate employment data release from Australia. The AUD/USD pair gained ground, benefiting from a substantial decline in the US Dollar (USD) following the Federal Reserve (Fed) meeting. In line with expectations, the Fed opted to maintain interest rates at 5.5%. Markets are now projecting three rate cuts for 2024. Fed Chair Jerome Powell adopted a dovish stance, contributing to the decline in Treasury bond yields. He refrained from declaring victory on inflation.
Australia’s Consumer Inflation Expectations for December eased at 4.5% against the previous figures of 4.9%. The seasonally adjusted Employment Change (Nov) improved substantially to 61.5K compared to the expected 11.0K. However, Unemployment Rate rose to 3.9% from 3.7% previously.
The US Dollar Index (DXY) receives downward pressure after downbeat Producer Price Index (PPI) data for November was released on Wednesday. US Bureau of Labor Statistics revealed that the PPI (YoY) reduced to the growth of 0.9% against the expected growth of 1.0%, while the Core PPI came in at 2.0% against the 2.2% expected. Market participants will likely observe the release of US Retail Sales data on Thursday.
Daily Digest Market Movers: Australian Dollar receives upward support after Fed policy decision
- ANZ-Roy Morgan Australian Consumer Confidence weekly survey rose to 80.8 from the previous week’s 76.4.
- Westpac Consumer Confidence for December showed improvement at 2.7% from the previous decline of 2.6%.
- Australian government anticipates a significantly improved budget bottom line this year as revenues outpace forecasts. In the mid-year economic and fiscal outlook (MYEFO) presented by Labor Treasurer Jim Chalmers, a budget deficit of just AUD 1.1 billion (USD 721.4 million) in the year to end June 2024 is projected, down from the AUD 13.9 billion forecasted back in May.
- US Bureau of Labor Statistics revealed that the US Consumer Price Index (CPI) for November rose by 0.1% month-on-month and 3.1% year-on-year. Both figures aligned with market consensus, indicating that inflation levels met expectations.
- US Core CPI, which excludes volatile food and energy prices, climbed by 0.3% MoM and 4.0% YoY, in line with expectations.
Technical Analysis: Australian Dollar surges to psychological level at 0.6700
The Australian Dollar trades higher around the psychological level at 0.6700 on Thursday. A potential upward move from this point could propel the AUD/USD pair towards August’s high at 0.6723, followed by the significant level at 0.6750. On the downside, the key support at 0.6650 holds significance, along with the 23.6% Fibonacci retracement at 0.6503, aligning with the psychological support at 0.6500. A decisive breach below this support level might exert downward pressure on the AUD/USD pair, with the potential to navigate towards the region around the 21-day Exponential Moving Average (EMA) at 0.6577.
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 | -0.17% | -0.17% | -0.30% | -0.75% | -0.58% | -0.74% | -0.34% | |
| EUR | 0.18% | 0.01% | -0.11% | -0.58% | -0.40% | -0.57% | -0.17% | |
| GBP | 0.17% | -0.01% | -0.12% | -0.59% | -0.44% | -0.60% | -0.17% | |
| CAD | 0.31% | 0.12% | 0.13% | -0.46% | -0.30% | -0.47% | -0.05% | |
| AUD | 0.74% | 0.56% | 0.55% | 0.44% | 0.15% | -0.03% | 0.39% | |
| JPY | 0.59% | 0.39% | 0.41% | 0.27% | -0.16% | -0.17% | 0.23% | |
| NZD | 0.77% | 0.56% | 0.57% | 0.45% | -0.01% | 0.16% | 0.39% | |
| CHF | 0.34% | 0.17% | 0.17% | 0.05% | -0.41% | -0.25% | -0.42% |
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-continues-to-move-upward-as-aussie-employment-change-improves-202312140130