- Australian Dollar weakened on Fed’s hawkish remarks on interest rates trajectory.
- Australia’s Retail Sales improved with a 0.3% rise in the fourth quarter against 0.2% prior.
- RBA maintained the OCR at 4.35% at February’s meeting, as expected.
- US Dollar surged as ISM Services PMI rose to 53.4, surpassing the expected figure of 52.0.
The Australian Dollar (AUD) attempts to retrace its recent losses on Tuesday. The AUD gains some ground as the Reserve Bank of Australia (RBA) maintained its Official Cash Rate (OCR) at 4.35% at February’s meeting, as expected. However, the AUD/USD pair weakened due to hawkish comments from Federal Reserve (Fed) Chair Jerome Powell, coupled with the reduced commodity prices.
Australian Bureau of Statistics released Retail Sales (QoQ) data on Tuesday, indicating an improvement with a 0.3% rise in the fourth quarter compared to the previous growth of 0.2%. The Australian economy is going through a cost-of-living crisis, there appears to be limited room for RBA policymakers to raise interest rates further. Instead, the focal point now shifts to when the central bank might commence reducing interest rates. Investors will closely monitor RBA Governor Michele Bullock’s upcoming speech on the monetary policy outlook, seeking additional insights into the central bank’s stance and potential future actions.
The US Dollar Index (DXY) experienced a notable surge following the Federal Reserve’s hawkish stance, driven by robust ISM Services data for January. The ISM Services PMI exceeded expectations, registering at 53.4, surpassing both the consensus figure of 52.0 and the previous month’s 50.5. Additionally, the ISM Services Employment Index saw an improvement, rising to 50.5 from the previous reading of 43.8.
Federal Reserve Chairman Jerome Powell contributed to the strengthening of the US Dollar by dampening expectations of a rate cut. Powell underscored the importance of monitoring inflation’s sustained movement toward the 2% core target. This stance led to an increase in US Treasury yields, putting downward pressure on the AUD/USD pair.
Daily Digest Market Movers: Australian Dollar weakens on Fed’s hawkish stance
- Australian Trade Balance (MoM) for January was reduced to the figure of 10,959M compared to the revised figure of 11,764M in December.
- Australia’s Judo Bank Composite Purchasing Managers Index (PMI) improved to 49 in January from 48.1 prior. The Services PMI saw an improvement, rising to 49.1 from the previous figure of 47.9.
- Aussie TD Securities Inflation (YoY) grew by 4.6%, against the previous growth of 5.2%.
- Australian TD Securities Inflation (MoM) grew by 0.3% in January, lower than the December’s rise of 1.0%.
- Chinese Caixin Services PMI reduced to 52.7 in January from the previous reading of 52.9.
- US ISM Services Prices Paid rose to the reading of 64.0 in January, from December’s reading of 56.7.
- The US Services New Orders Index for January improved to 55.0 from the previous figure of 52.8.
- US S&P Global Composite PMI came in at 52.0 in January, slightly lower than the 52.3 prior.
Technical Analysis: Australian Dollar could test the psychological level of 0.6500
The Australian Dollar traded around 0.6490 on Tuesday, positioned below the resistance level of 0.6500. A potential breach above this level could serve as a catalyst for the AUD/USD pair to test the resistance zone near the major level at 0.6550. Subsequently, further upward movement may lead to encounters with the 23.6% Fibonacci retracement level at 0.6563, ultimately reaching the 21-day Exponential Moving Average (EMA) at 0.6587. On the downside, immediate support is anticipated at the psychological level of 0.6450 following another psychological support level at 0.6400.
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 | -0.06% | -0.10% | -0.18% | -0.40% | -0.02% | -0.20% | -0.06% | |
EUR | 0.05% | -0.04% | -0.14% | -0.34% | 0.03% | -0.15% | -0.01% | |
GBP | 0.10% | 0.04% | -0.09% | -0.30% | 0.07% | -0.11% | 0.03% | |
CAD | 0.17% | 0.13% | 0.09% | -0.18% | 0.16% | -0.04% | 0.12% | |
AUD | 0.36% | 0.30% | 0.26% | 0.18% | 0.34% | 0.16% | 0.30% | |
JPY | 0.02% | -0.03% | -0.07% | -0.16% | -0.34% | -0.19% | -0.04% | |
NZD | 0.21% | 0.15% | 0.11% | 0.02% | -0.15% | 0.18% | 0.15% | |
CHF | 0.06% | 0.00% | -0.04% | -0.13% | -0.34% | 0.04% | -0.15% |
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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