- Australian Dollar faced challenges on risk-off mood and bearish commodity prices.
- Australian Services and Composite PMI reduced to 47.1 and 46.9, respectively, in December.
- China Services PMI rose to 52.9 in December, exceeding the 51.6 expected and 51.5 prior.
- US ISM Manufacturing PMI increased to 47.4 in December from the previous reading of 46.7.
The Australian Dollar (AUD) faces challenges as it struggles to halt its losing streak on Thursday. The AUD/USD pair is under downward pressure due to risk-off sentiment and a general bearish session in the commodity complex. The softer Judo Bank Purchasing Managers Index (PMI) data further adds pressure on the Aussie Dollar (AUD). Moreover, the improved Chinese services data could limit the losses of the AUD. The Caixin Services PMI rose to 52.9 in December, exceeding the 51.6 expected and 51.5 prior.
Australia’s Services sector contracted in December, according to the latest Judo Bank Services PMI. The index reported a reading of 47.1, falling short of market expectations that it would remain consistent at 47.6. Additionally, the Composite PMI decreased to 46.9 from the previous figure of 47.4. This marks the fastest pace of Services contraction since the third quarter of 2021.
Matthew De Pasquale, Economist at Judo Bank, suggests that recent readings over the past two months indicate that while the Australian economy is slowing down, the slowdown is not accelerating. Despite households grappling with continuous challenges posed by elevated interest rates, both the output and new order indexes persist at levels that align with the Reserve Bank of Australia’s (RBA) anticipated soft landing scenario.
The US Dollar Index (DXY) seems to remain on a positive trajectory, strengthened by improved United States (US) Treasury yields. The positive momentum may also find support from the enhanced ISM Manufacturing PMI report, which showed an increase to 47.4 in December from the previous reading of 46.7, surpassing the market consensus of 47.1. However, JOLTS Job Openings contracted to 8.79 million, falling short of the expected figure of 8.85 million in November. Traders await US labor market data releases including ADP Employment Change and Initial Jobless Claims.
The December minutes from the Federal Open Market Committee (FOMC) suggest that participants think the policy rate has either reached or is close to its highest point in the current tightening cycle. However, they emphasized that the specific trajectory of the policy would hinge on the evolving economic conditions.
Daily Digest Market Movers: Australian Dollar faces challenges on risk-off sentiment
- Australia’s Judo Bank Manufacturing PMI indicated a modest contraction in manufacturing activity, declining to 47.6 in December from the previous reading of 47.8.
- RBA’s internal documents revealed a slip in domestic tourism demand. Additionally, consumers are reported to be trading down to more affordable products or reducing their overall purchases due to cost-of-living pressures. However, the documents suggest that private sector wage growth has stabilized at around 4.0%.
- Australian Prime Minister Anthony Albanese announced that he has directed Treasury and Finance to explore measures that can alleviate the financial burden on families in terms of cost of living without exerting additional inflation pressure.
- The characterization of the January 13 presidential and parliamentary elections by China as a choice between war and peace could add to the geopolitical tensions in the region. A senior Chinese official has urged Taiwan’s people to make a “correct choice,” hinting at the potential consequences based on election outcomes.
- China’s NBS Manufacturing PMI for December reduced to the reading of 49.0 from the previous 49.4 figure. The market expectation was an increase to 49.5. While NBS Non-Manufacturing PMI improved to 50.4 from the 50.2 prior but fell short of the 50.5 expected.
- US ISM Manufacturing Employment Index improved to 48.1 in December from 45.8 in November.
- US S&P Global Manufacturing PMI posted a lower-than-expected figure of 47.9, diverging from the anticipated consistency at 48.2.
Technical Analysis: Australian Dollar moves below the key level at 0.6750
The Australian Dollar trades near 0.6730 on Thursday, with a significant resistance level at 0.6750 and the nine-day Exponential Moving Average (EMA) at 0.6765 potentially acting as key hurdles. A successful breakthrough above the EMA could pave the way for the AUD/USD pair to challenge the psychological barrier at 0.6800. On the downside, crucial support lies at the 23.6% Fibonacci retracement level of 0.6725. If breached, it might exert downward pressure, leading the pair towards psychological support at 0.6700, followed by the 38.2% Fibonacci retracement level at 0.6637.
AUD/USD: Daily Chart
(This story was corrected on Thursday at 02:20 GMT in the third paragraph to say “Matthew De Pasquale” instead of “Matthew De Pasuale”.)
Australian Dollar price this week
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies this week. Australian Dollar was the strongest against the Japanese Yen.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | 1.15% | 0.45% | 0.67% | 1.07% | 1.66% | 0.82% | 0.87% | |
EUR | -1.03% | -0.56% | -0.34% | 0.06% | 0.52% | -0.18% | -0.14% | |
GBP | -0.46% | 0.54% | 0.23% | 0.61% | 1.29% | 0.36% | 0.35% | |
CAD | -0.67% | 0.29% | -0.05% | 0.36% | 0.99% | 0.13% | 0.13% | |
AUD | -1.07% | -0.08% | -0.61% | -0.41% | 0.42% | -0.25% | -0.27% | |
JPY | -1.68% | -0.50% | -1.13% | -0.80% | -0.43% | -0.69% | -0.87% | |
NZD | -0.85% | 0.18% | -0.39% | -0.16% | 0.23% | 0.64% | -0.03% | |
CHF | -0.81% | 0.19% | -0.34% | -0.11% | 0.23% | 0.80% | 0.03% |
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).
Employment FAQs
Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.
The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.
The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.
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