- Australian Dollar gains strength after the release of the mixed Chinese data.
- Australian currency retraces its recent losses on risk-on mood.
- Chinese CPI YoY fell by 0.3% and the monthly figure eased to 0.1%.
- Chinese Trade Balance USD increased to $75.34B in December. While, the yearly Imports CNY rose by 1.6%.
- Upbeat US CPI contributed support to underpinning the US Dollar.
The Australian Dollar (AUD) made a modest upward move, nearing the psychological level at 0.6700 on Friday following a retracement after registering losses in the previous session. The AUD/USD pair is getting support for its upward movement as market speculation remains elevated regarding potential rate cuts by the US Federal Reserve (Fed) in March and May. However, the pair experienced a downward shift following the release of better-than-expected inflation data from the United States (US).
Australia’s Monthly Consumer Price Index for October and November indicates a marginal decrease, suggesting that the headline inflation for Q4 2023 will likely fall below the Reserve Bank of Australia’s (RBA) annual forecast of 4.5%. The Australian Bureau of Statistics (ABS) data on job vacancies, showing a decline for six consecutive quarters, aligns with the easing pressures in the labor market. These findings imply that there may be no further interest rate hikes from the RBA in February.
Australia’s data also showed the increase in November’s Retail Sales and the widening of December’s Trade Surplus present contrasting signals. These positive economic indicators could influence the RBA to refrain from implementing any monetary policy easing despite the subdued inflation data.
Chinese Consumer Price Index (YoY) exhibited a decrease of 0.3% in December, contrary to the anticipated 0.4% decline. Additionally, the monthly Consumer Price Index showed a milder easing at 0.1%, compared to the market expectation of 0.2%. The yearly Producer Price Index recorded a fall of 2.7%, slightly exceeding the expected decline of 2.6%.
Chinese Trade Balance in USD rose to $75.34B, up from the previous $68.39B, surpassing the expected $74.75B. The Exports (YoY) figure exhibited a growth of 2.3%, exceeding the anticipated 1.7%. Concurrently, the yearly Imports in CNY increased by 1.6%, compared to the previous 0.6%. These economic indicators suggest a potential absence of policy tightening from the People’s Bank of China (PBoC) and indicate improved economic activities. These factors, coupled with the close business relations between China and Australia, are favorable for supporting the Australian Dollar (AUD).
The US Dollar Index (DXY) maintains its position to build on recent gains after positive US inflation data was released on Thursday. Despite a slight setback in the previous session due to a decline in US Treasury yields, the US Dollar (USD) is poised for potential advancements on Friday as US yields show signs of improvement.
US Bureau of Labor Statistics reported that the Consumer Price Index (CPI) surged to 3.4% YoY in December, exceeding both November’s 3.1% and the anticipated market figure of 3.2%. Additionally, the monthly CPI growth for December showed a 0.3% increase, surpassing the market analysts’ estimated projection of 0.2%. The annual Core CPI stood at 3.9%, a slight decrease from November’s 4.0%, while the monthly figure remained steady at 0.3%, in line with expectations.
Traders anticipate the release of the US Producer Price Index (PPI) data for December, seeking additional insights into the economic landscape of the United States. In addition to the PPI data, the market will be attentive to a speech by Federal Reserve member Neel Kashkari later in the North American session, as it could provide further context and influence on market sentiment.
Daily Digest Market Movers: Australian Dollar experiences gains on risk-on mood
- Australia’s trade surplus increased to 11,437M MoM in December, surpassing the market expectation of 7,500M and exceeding the previous reading of 7,129M.
- 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%.
- 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.
- 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.
- US Initial Jobless Claims for the week ending on January 5 eased at 202K against the market expectation of 210K and 203K prior.
Technical Analysis: Australian Dollar hovers around 0.6700 psychological level
The Australian Dollar trades near 0.6700 on Friday, positioned below the 14-day Exponential Moving Average (EMA) at 0.6721. A potential breakthrough above the EMA might propel the AUD/USD pair toward the key resistance at 0.6750. On the downside, crucial support lies at 0.6650, in conjunction with the weekly low at 0.6647, serving as significant psychological support. A breach below this level could lead the AUD/USD pair to explore the vicinity around the 38.2% Fibonacci retracement level, situated at 0.6637.
AUD/USD: Daily Chart
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 | -0.32% | -0.46% | 0.14% | 0.18% | 0.16% | 0.04% | 0.15% | |
EUR | 0.32% | -0.12% | 0.47% | 0.52% | 0.50% | 0.38% | 0.47% | |
GBP | 0.45% | 0.12% | 0.60% | 0.64% | 0.62% | 0.50% | 0.60% | |
CAD | -0.15% | -0.49% | -0.60% | 0.05% | 0.05% | -0.10% | 0.00% | |
AUD | -0.18% | -0.51% | -0.64% | -0.05% | -0.01% | -0.15% | -0.06% | |
JPY | -0.19% | -0.48% | -0.64% | -0.01% | 0.03% | -0.11% | -0.02% | |
NZD | -0.06% | -0.40% | -0.53% | 0.07% | 0.11% | 0.10% | 0.08% | |
CHF | -0.15% | -0.48% | -0.59% | 0.01% | 0.07% | 0.03% | -0.09% |
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.
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