- Australian Dollar depreciated after the Fed ruled out a rate cut in March.
- Australia’s Business Confidence (QoQ) decreased to -6 in the fourth quarter from the -1 prior.
- The weak Aussie quarterly inflation report strengthens the speculation of two quarter-point reductions in 2024.
- US Dollar faced challenges due to the disappointing US ADP Employment Change.
The Australian Dollar (AUD) attempts to retrace its recent losses on Thursday. However, the AUD/USD pair witnessed a decrease in the preceding session following Federal Reserve (Fed) Chairman Jerome Powell’s announcement. Powell ruled out the possibility of a rate cut in the upcoming March meeting, a decision widely anticipated after the Fed chose to maintain current interest rates. He emphasized the persistence of elevated inflation and highlighted the robust expansion of economic activity.
Australia’s Dollar might face downward pressure, with bond traders increasing their expectations of early interest rate cuts by the Reserve Bank of Australia (RBA) following an unexpectedly weak quarterly inflation report. Despite this, the RBA is anticipated to almost certainly maintain the cash rate at 4.35% during its February meeting. Future markets are fully pricing in two quarter-point reductions in 2024, with the initial adjustment expected in August.
National Australia Bank’s Business Confidence (QoQ) decreased to -6 in the fourth quarter from the previous decrease of -1. Building Permits (MoM) declined by 9.5% against the expected growth of 1.1% in December.
The US Dollar Index (DXY) faced losses following disappointing US employment figures but managed to recover ground after Fed Chair Powell made hawkish comments on Wednesday. The rise in US Treasury yields provides additional support for the US Dollar (USD). Furthermore, increased risk aversion stemming from heightened tensions in the Middle East could contribute to bolstering the Greenback. This, in turn, poses a challenge for the AUD/USD pair.
The US ADP Employment Change reported 107K, falling short of the expected 145K in January, with the previous reading at 158K in December. Thursday will see attention on US Initial Jobless Claims, Nonfarm Productivity, and ISM Manufacturing PMI.
Daily Digest Market Movers: Australian Dollar declines on hawkish remarks by Fed
- Australia’s Monthly Consumer Price Index (CPI) recorded a year-on-year increase of 3.4% in December, down from November’s 4.3% and below the anticipated 3.7%.
- RBA Trimmed Mean CPI (YoY) for the fourth quarter stood at 4.2%, a decline from the 5.2% reported previously and also lower than the expected 4.3%.
- Australian CPI (QoQ) figure came in at 0.6%, softer than the anticipated 0.8% and a notable decrease from the previous reading of 1.2%.
- Chinese Non-Manufacturing Purchasing Managers’ Index (PMI) improved to 50.7, slightly surpassing the expected figure of 50.6.
- China’s Manufacturing PMI reached 49.2, meeting the anticipated value and advancing from the previous reading of 49.
- US balance sheet showed that since October 2023, the decrease in yields has contributed to the sustainability of the US Treasury, and stronger economic growth has led to improved tax receipts. The US Treasury Department recently announced plans to borrow $760 billion in the first quarter, which is lower than the previous estimate of $816 billion in October.
- The US Employment Cost Index eased at 0.9% compared to the 1.0% as expected in the fourth quarter.
- Chicago Purchasing Managers’ Index reported a reading of 46 in January, against the expected increase to 48 from 47.2 prior.
- US JOLTS Job Openings improved to 9.026M in December from 8.925M prior, exceeding the anticipated 8.75M.
- US Housing Price Index (MoM) was unchanged at the reading of 0.3% in November.
Technical Analysis: Australian Dollar stays above the weekly low of 0.6551
The Australian Dollar trades around 0.6570 on Thursday, hovering above the weekly low of 0.6551, which coincides with a significant support level at 0.6550. A breach of this support might prompt a retest of January’s low at 0.6524. On the upside, the AUD/USD pair could face initial resistance at the psychological level of 0.6600, in conjunction with the 23.6% Fibonacci retracement level at 0.6606. A successful breakthrough above the latter may lead the pair toward testing the 21-day Exponential Moving Average (EMA) at 0.6617, followed by a crucial resistance level 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 Swiss Franc.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | -0.15% | -0.13% | -0.08% | -0.21% | -0.26% | -0.39% | -0.01% | |
EUR | 0.15% | 0.01% | 0.05% | -0.04% | -0.08% | -0.25% | 0.14% | |
GBP | 0.13% | -0.01% | 0.02% | -0.07% | -0.10% | -0.27% | 0.13% | |
CAD | 0.08% | -0.05% | -0.02% | -0.09% | -0.12% | -0.28% | 0.12% | |
AUD | 0.20% | 0.03% | 0.05% | 0.08% | -0.05% | -0.21% | 0.21% | |
JPY | 0.27% | 0.11% | 0.12% | 0.13% | 0.05% | -0.15% | 0.25% | |
NZD | 0.39% | 0.27% | 0.28% | 0.32% | 0.19% | 0.14% | 0.40% | |
CHF | 0.01% | -0.14% | -0.12% | -0.07% | -0.20% | -0.25% | -0.40% |
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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