- Australian Dollar weakened as the US Dollar surged on solid Nonfarm Payrolls.
- Australia’s Trade Balance reduced to 10,959M in January from 11,764M prior.
- Chinese Services PMI reduced to 52.7 in January from the previous reading of 52.9.
- RBA is expected to keep the cash rate steady at 4.35% at Tuesday’s meeting.
- US NFP added 353K jobs in January against the market consensus of 180K.
The Australian Dollar (AUD) faces selling pressure on Monday due to the blockbuster job data from the United States (US), which has resulted in a sharp rise in the US Dollar (USD), weighing on the AUD/USD pair. Additionally, the benchmark S&P/ASX 200 Index retreats from last week’s record high, with miners and energy sectors taking the brunt, putting additional pressure on the AUD.
Australian Bureau of Statistics released the Trade Balance for January on Monday. The monthly report showed a reduction, with the figure at 10,959M compared to the revised figure of 11,764M in December. Additionally, the 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.
Meanwhile, TD Securities Inflation (YoY) grew by 4.6%, against the previous growth of 5.2%. Furthermore, Chinese Caixin Services PMI reduced to 52.7 in January from the previous reading of 52.9.
The Reserve Bank of Australia (RBA) is set to announce its interest rate decision on Tuesday. In a Reuters Poll, analysts unanimously expect the RBA to keep the cash rate steady at 4.35%. Investors will closely observe RBA Governor Michele Bullock’s speech on the monetary policy outlook for further insights into the central bank’s stance.
The US Dollar Index (DXY) reaches an eight-week high, fueled by positive market sentiment as a March rate cut appears unlikely. This sentiment is based on a promising labor market report, where data from the US Bureau of Labor Statistics (BLS) on Friday showed that Nonfarm Payrolls added 353,000 jobs in January, surpassing the previous reading of 333,000 and exceeding the market consensus of 180,000. Additionally, Average Hourly Earnings (YoY) rose by 4.5%, surpassing the expected 4.1% and the previous 4.4% rise. Traders will further observe the ISM Services Employment Index, which is due to be released on Monday.
US Federal Reserve Chair Jerome Powell reiterated the expectation that the March meeting is likely too soon to have confidence in starting rate cuts. With the economy strong, the Fed intends to approach the timing of rate cuts carefully. Powell expressed that confidence is rising, but the central bank wants more assurance before taking the “crucial step” of initiating rate cuts.
Fed Chair Powell mentioned that they are making good progress on inflation and could potentially move sooner if they observed weakness in the labor market or if inflation were to convincingly decrease. He noted that more persistent inflation could lead to a later move.
Daily Digest Market Movers: Australian Dollar weakens after solid US labor data
- Australian TD Securities Inflation (MoM) grew by 0.3% in January, lower than the December’s rise of 1.0%.
- Australia’s ANZ Job Advertisements rose by 1.7% in January, exceeding the previous growth rate of 0.6%.
- Australian Bureau of Statistics showed a growth in monthly Imports in January rising at 4.8% against the previous reading of -8.4%. While Exports grew by 1.8% against the 0.6% prior.
- US Average Hourly Earnings (MoM) came in at 0.6% for January, exceeding the expected 0.3% and 0.4% reading from December.
- The US Unemployment Rate is unchanged at 3.7% in January against the market consensus of 3.8%.
- US Bureau of Labor Statistics showed that January’s Labor Force Participation Rate remained stable at 62.5%.
- Michigan Consumer Sentiment Index improved to the figure of 79 in January against the anticipated 78.9 and December’s figure of 78.8.
Technical Analysis: Australian Dollar tests the psychological barrier at 0.6500
The Australian Dollar traded around 0.6490 on Monday, situated below the immediate psychological barrier level of 0.6500, following the major level at 0.6550. A break above this level could potentially support the AUD/USD pair to test the resistance zone around the 23.6% Fibonacci retracement at 0.6573, before reaching the 21-day Exponential Moving Average (EMA) at 0.6598. The latter is aligned with the psychological level at 0.6600. On the downside, the 0.6450 level is a key support, following the psychological support 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 weakest against the Japanese Yen.
USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
USD | 0.02% | 0.13% | 0.05% | 0.05% | -0.01% | -0.02% | 0.08% | |
EUR | -0.01% | 0.12% | 0.03% | 0.02% | -0.04% | -0.05% | 0.05% | |
GBP | -0.14% | -0.12% | -0.08% | -0.10% | -0.16% | -0.16% | -0.06% | |
CAD | -0.05% | -0.04% | 0.09% | -0.05% | -0.06% | -0.10% | 0.01% | |
AUD | -0.01% | 0.02% | 0.13% | 0.05% | -0.02% | -0.02% | 0.07% | |
JPY | 0.01% | 0.03% | 0.12% | 0.07% | 0.07% | -0.02% | 0.09% | |
NZD | 0.02% | 0.04% | 0.16% | 0.08% | 0.02% | -0.02% | 0.10% | |
CHF | -0.08% | -0.06% | 0.06% | -0.03% | -0.08% | -0.08% | -0.13% |
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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