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Australian Dollar moves above the psychological level amid a stable US Dollar

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  • Australian Dollar hovers around the psychological resistance amid an improved S&P/ASX 200.
  • Reserve Bank of Australia Governor Michele Bullock reaffirmed the commitment to managing inflation.
  • CBA maintains its forecast of 75 bps rate cuts for 2024, with the initial cut anticipated in September.
  • The US Dollar attempts to extend its gains despite the weaker US bond yields.

The Australian Dollar (AUD) hovers around the psychological level of 0.6500 on Friday, retracing the losses registered in the previous two sessions. The AUD/USD pair faced obstacles as the S&P/ASX 200 index dipped during Friday’s early trading session, coupled with decreases in coal and iron ore prices. Nonetheless, the Australian money market recovered intraday losses and turned positive, likely offering support to the Australian Dollar (AUD). This upward momentum for the AUD could serve as a positive factor for the pair. Moreover, the US Dollar (USD) strengthened against the Australian Dollar (AUD), supported by the uptick in US Treasury yields observed on Thursday.

Australian Dollar may have found some support as Reserve Bank of Australia (RBA) Governor Michele Bullock reaffirmed the RBA’s commitment to managing inflation, noting encouraging signs in inflation data. Bullock spoke in parliament on Friday, acknowledging the positive trends in recent inflation data but emphasizing the need for further progress to reach the target. She also stated that if consumer spending decelerates more rapidly than expected, rate cuts could be considered. Additionally, the Commonwealth Bank of Australia (CBA) forecasted a reduction of 75 basis points in the benchmark interest rate for 2024, with the initial cut anticipated in September.

The US Dollar Index (DXY) strives to build on its recent uptrend for the second consecutive day, even as US bond yields dip. This resilience is largely attributed to hawkish remarks from the US Federal Reserve (Fed) officials, which continue to bolster the US Dollar. Furthermore, positive data from the US job market likely provides additional support to the strengthening of the Greenback.

Federal Reserve Richmond President Thomas Barkin reiterated on Thursday that policymakers have the flexibility to exercise patience regarding the timing of rate adjustments, citing a robust labor market and persistent disinflation. Federal Reserve Chair Jerome Powell also dismissed the notion of a rate cut in March during a press conference following the interest rate decision on January 31.

US Initial Jobless Claims declined to 218K in the week ending on February 2, from the previous week’s 227K, surpassing the estimated figure of 220K. Continuing Jobless Claims dropped to 1.871M for the week ending January 26. Market forecasts anticipated a decrease of 1.878M from the previous reading of 1.894M.

Daily Digest Market Movers: Australian Dollar remains calm amid a steady US Dollar

  • Australia’s December AiG Industry Index came in at -27.3 as compared to the -22.4 prior.
  • Australia’s Retail Sales (QoQ) improved with a 0.3% rise in the fourth quarter compared to the previous growth of 0.2%.
  • Chinese Consumer Price Index (CPI) grew by 0.3% MoM in January, falling short of the expected 0.4%. However, it has been improved from the previous reading of 0.1%.
  • China’s annual CPI declined by 0.8%, exceeding the anticipated decline of 0.5% and the previous decline of 0.3%.
  • China’s Producer Price Index (YoY) declined by 2.5%, lower than the expected 2.6% decline.
  • Federal Reserve Governor Adriana Kugler expressed satisfaction with the significant progress on inflation during remarks on Wednesday, expressing optimism that this progress will persist.
  • Fed Boston President Susan Collins, speaking at the Boston Economic Club, indicated the likelihood of rate cuts later in the year if the economy aligns with expectations.
  • The Atlanta Fed’s wage growth tracker has declined to 5.0% in January from 5.2% reported in December. This represents the lowest growth rate since December 2021, when it stood at 4.5%.
  • US Initial Jobless Claims 4-week average rose to 212.25K in the week ending on February 2, from 208.5K prior.
  • US Wholesale Inventories remained consistent at 0.4%, as expected.
  • 4-week and 30-year US Bill was auctioned at the average yield of 5.28% and 4.36%, respectively.

Technical Analysis: Australian Dollar hovers below the psychological level of 0.6500

The Australian Dollar trades around 0.6490 on Friday, slightly below the immediate resistance at the psychological level of 0.6500. A breakthrough above the psychological level could potentially prompt further upward movement for the AUD/USD pair, with key targets including the major barrier at 0.6550 followed by the 23.6% Fibonacci retracement level at 0.6563 aligned with the 21-day Exponential Moving Average (EMA) at 0.6568. On the downside, key support is anticipated at the weekly low at 0.6468 before the major support of 0.6450 level.

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 Japanese Yen.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.05% -0.05% -0.02% -0.08% 0.13% -0.50% 0.13%
EUR 0.06%   0.01% 0.05% -0.03% 0.19% -0.43% 0.19%
GBP 0.06% -0.01%   0.05% -0.03% 0.18% -0.44% 0.19%
CAD 0.01% -0.05% -0.03%   -0.07% 0.13% -0.47% 0.15%
AUD 0.09% 0.03% 0.03% 0.06%   0.25% -0.40% 0.22%
JPY -0.13% -0.19% -0.20% -0.15% -0.23%   -0.59% 0.02%
NZD 0.49% 0.43% 0.43% 0.47% 0.43% 0.66%   0.62%
CHF -0.14% -0.19% -0.19% -0.15% -0.19% -0.01% -0.62%  

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).

Australian Dollar FAQs

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.

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