- Australian Dollar gains ground on improved risk-on sentiment.
- Australian Trade Balance rose to 11,437M against the market expectation of 7,500M.
- US Dollar faces downward pressure as traders price in the possibility of five rate cuts in 2024.
The Australian Dollar (AUD) gains upward traction for the second successive day on Thursday. The improved risk-on sentiment puts pressure on the US Dollar (USD), which in turn, supports the AUD/USD pair. Additionally, the upbeat Aussie Trade Balance data could also provide support to underpinning the Aussie Dollar (AUD).
Australia’s trade surplus widened to 11,437 million month-on-month in December, surpassing the market expectation of 7,500 million and exceeding the previous reading of 7,129 million, according to the latest report from the Bureau of Statistics. While the economic signals in Australia offer a diverse perspective, with the Monthly Consumer Price Index for November showing a slight decrease and Retail Sales indicating an increase, lower-than-expected inflation figures in Australia also contribute to the perception of a potential pause by the RBA at its next February meeting.
The US Dollar Index (DXY) experiences a decline, attributed to weaker US Treasury yields. Additionally, an improved risk appetite among traders is evident as they speculate on the possibility of five rate cuts in 2024. New York Federal Reserve (Fed) President John Williams remarked on Wednesday that financial markets remain highly responsive to new data. Williams expressed confidence in the Fed’s current position and suggested that it is now opportune to contemplate the future trajectory of interest rates.
Market participants await the release of December’s Consumer Price Index (CPI) data from the United States (US) on Thursday. This economic data holds significant importance for assessing inflationary pressures and has the potential to significantly impact market expectations regarding the monetary policy stance of the US Federal Reserve.
Daily Digest Market Movers: Australian Dollar gains on improved risk appetite
- Australian Monthly Consumer Price Index (YoY) for November showed a slight reduction to 4.3%, falling slightly short of the market expectation of 4.4% from the previous figure of 4.9%.
- Australia’s Bureau of Statistics revealed the seasonally adjusted Retail Sales (MoM) for November, which rose by 2.0% instead of the expected 1.2%, swinging from the previous 0.2% decline.
- Aussie Building Permits (MoM) came to 1.6% from 7.5% prior against the expected decline of 2.0%.
- Chinese Defense Ministry has urged the United States to cease providing support to provocations by certain countries. China is calling on the US to adhere to the “One China Principle” and to halt the arming of Taiwan. Furthermore, the ministry is urging the US to strictly restrain front-line forces and refrain from hyping up security issues.
- Atlanta Fed President Raphael W. Bostic mentioned on Monday that inflation has declined more than initially anticipated and expressed the view of expecting two quarter-point cuts by the end of 2024. Bostic conveyed comfort with the current rate level and emphasized the importance of allowing the Fed’s tight policy time to work on cooling off inflation.
- US Fed Governor Michelle W. Bowman expressed that inflation could fall further with the policy rate held steady for some time. Bowman said that the current policy stance appears sufficiently restrictive, but it might eventually become appropriate to lower the Fed’s policy rate if inflation falls closer to the 2% target.
- US Nonfarm Payrolls rose to 216K in December, showing an improvement from the 173K reported in November. This figure surpassed the market expectation, which anticipated a rise of 170K.
- US Average Hourly Earnings (YoY) improved to 4.1% from 4.0% prior. Meanwhile, the monthly index remained consistent at 0.4% against the expected decline of 0.3%.
- US ISM Services Purchasing Managers Index (PMI) came in at 50.6 against the expected 52.6 and 52.7 prior. While the Services Employment Index reduced to 43.3 from the previous reading of 50.7.
Technical Analysis: Australian Dollar looks to approach 0.6750 major level
The Australian Dollar trades near 0.6720 on Thursday situated below the nine-day Exponential Moving Average (EMA) at 0.6724. A potential breakthrough above the latter could bring the AUD/USD pair closer to the key barrier at 0.6750. Conversely, on the downside, the 0.6700 level holds importance as a significant psychological support following the major support of 0.6650. A break below the latter could push the AUD/USD pair to navigate the area around the 38.2% Fibonacci retracement level at 0.6637. If the price drops below this level, it may lead the AUD/USD pair to explore the territory around the psychological level of 0.6600.
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 | -0.05% | -0.17% | -0.13% | -0.30% | -0.27% | -0.34% | -0.14% | |
EUR | 0.05% | -0.12% | -0.08% | -0.25% | -0.22% | -0.31% | -0.08% | |
GBP | 0.16% | 0.12% | 0.02% | -0.13% | -0.10% | -0.19% | 0.04% | |
CAD | 0.13% | 0.07% | -0.04% | -0.17% | -0.14% | -0.21% | 0.00% | |
AUD | 0.30% | 0.26% | 0.14% | 0.18% | 0.05% | -0.05% | 0.18% | |
JPY | 0.26% | 0.21% | 0.09% | 0.12% | -0.05% | -0.13% | 0.12% | |
NZD | 0.34% | 0.32% | 0.19% | 0.21% | 0.05% | 0.08% | 0.24% | |
CHF | 0.12% | 0.08% | -0.04% | 0.00% | -0.17% | -0.13% | -0.23% |
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).
Inflation FAQs
Inflation measures the rise in the price of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core inflation excludes more volatile elements such as food and fuel which can fluctuate because of geopolitical and seasonal factors. Core inflation is the figure economists focus on and is the level targeted by central banks, which are mandated to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (MoM) and year-on-year (YoY) basis. Core CPI is the figure targeted by central banks as it excludes volatile food and fuel inputs. When Core CPI rises above 2% it usually results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite is true when inflation falls.
Although it may seem counter-intuitive, high inflation in a country pushes up the value of its currency and vice versa for lower inflation. This is because the central bank will normally raise interest rates to combat the higher inflation, which attract more global capital inflows from investors looking for a lucrative place to park their money.
Formerly, Gold was the asset investors turned to in times of high inflation because it preserved its value, and whilst investors will often still buy Gold for its safe-haven properties in times of extreme market turmoil, this is not the case most of the time. This is because when inflation is high, central banks will put up interest rates to combat it.
Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold vis-a-vis an interest-bearing asset or placing the money in a cash deposit account. On the flipside, lower inflation tends to be positive for Gold as it brings interest rates down, making the bright metal a more viable investment alternative.
Credit: Source link