- Australian Dollar extends gains on positive economic data from Australia.
- Australian Employment Change surged to 116.5K in February, exceeding expectations of 40.0K.
- US Dollar weakens following the Fed’s reaffirmation of expectations for three interest rate cuts in 2024.
The Australian Dollar (AUD) continued its upward momentum for the second consecutive session on Thursday, likely buoyed by positive employment data from Australia. Concurrently, the US Dollar (USD) saw a significant decline following the Federal Open Market Committee’s (FOMC) decision to maintain rates at 5.5% during Wednesday’s policy meeting. This decision provided support for the AUD/USD pair. Furthermore, remarks made by US Federal Reserve (Fed) Chair Jerome Powell in the post-meeting press conference, signaling a dovish stance, exerted additional downward pressure on the Greenback.
Australian equity market surrendered its intraday gains and slipped into negative territory. This could potentially limit the AUD’s advance. However, earlier in the trading day, the ASX 200 Index surged by nearly 1.0%, aligning with a rally on Wall Street from the previous session.
The US Dollar Index (DXY) exhibited a gap down on Thursday following its significant decline in the preceding session. Weaker US Treasury yields contributed to the losses in the US Dollar, which were likely influenced by the Fed’s reaffirmation of expectations for three interest rate cuts in 2024.
Daily Digest Market Movers: Australian Dollar appreciates on positive market sentiment
- Australian Employment Change for February surged to 116.5K, surpassing expectations of 40.0K and the previous figure of 15.3K.
- Australia’s Unemployment Rate increased by 3.7%, lower than the anticipated 4.0% and the previous 4.1%.
- The preliminary Judo Bank Services PMI rose to 53.5, up from the previous figure of 53.1.
- Judo Bank Composite PMI showed a slight increase, reaching 52.4 compared to the previous 52.1.
- People’s Bank of China (PBoC) has kept its interest rate unchanged at 3.45%.
- Chinese Foreign Minister Wang Yi met Australia’s Foreign Affairs Minister Penny Wong. The Chinese side emphasized their substantial potential. They stressed that China-Australia relations are progressing positively and urged against any hesitation, deviation, or reversal in this forward momentum.
- During the FOMC Press Conference, Fed Chair Jerome Powell emphasized that although inflation is showing signs of moderation, the persistence of price growth remains a significant concern that the Fed cannot ignore.
- US Building Permits (MoM) increased to 1.518 million in February, against the expected 1.495 million and 1.489 million prior.
- US Housing Starts (MoM) rose to 1.521M from the previous figure of 1.374M, exceeding the market expectation of 1.425M in February.
- The preliminary US Michigan Consumer Sentiment Index for March decreased to 76.5, from the previous reading of 76.9. This decline comes in contrast to expectations of it remaining unchanged.
Technical Analysis: Australian Dollar advances to near 0.6620 followed by a major barrier
The Australian Dollar trades near 0.6620 on Thursday. Notably, a key resistance level stands at 0.6650, a significant marker for potential upward movement. A successful breakthrough above this level could provide momentum for the AUD/USD pair to revisit March’s high, recorded at 0.6667 on March 8. On the downside, immediate support is observed at the 23.6% Fibonacci retracement level of 0.6614, followed by the psychological barrier of 0.6600. Should the pair breach below the latter, it may face further downward pressure, potentially navigating toward the region surrounding the 38.2% Fibonacci retracement at 0.6581 and the 14-day Exponential Moving Average (EMA) positioned at 0.6575.
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 | -0.49% | -0.52% | -0.60% | -1.03% | 1.03% | -0.18% | 0.16% | |
EUR | 0.48% | -0.04% | -0.12% | -0.53% | 1.49% | 0.30% | 0.62% | |
GBP | 0.52% | 0.04% | -0.07% | -0.49% | 1.53% | 0.34% | 0.66% | |
CAD | 0.59% | 0.11% | 0.06% | -0.40% | 1.60% | 0.41% | 0.73% | |
AUD | 1.02% | 0.50% | 0.46% | 0.42% | 2.00% | 0.82% | 1.14% | |
JPY | -1.04% | -1.54% | -1.50% | -1.64% | -2.08% | -1.23% | -0.88% | |
NZD | 0.18% | -0.30% | -0.34% | -0.41% | -0.83% | 1.20% | 0.32% | |
CHF | -0.14% | -0.63% | -0.67% | -0.74% | -1.16% | 0.88% | -0.32% |
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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