Australian Dollar maintains position above the major level , focus on US housing data

  • Australian Dollar attempts to halt its losing streak as the US Dollar improves on risk aversion.
  • Australian Consumer Inflation Expectations and Unemployment Rate remained consistent at 4.5% and 3.9%, respectively.
  • The solid US Retail Sales data reinforced the strength of the Greenback.
  • Traders’ expectations have been trimmed for the Fed’s first rate cut in March.

The Australian Dollar (AUD) grapples to retrace its losses on Thursday that began on January 11. The robust economic data emanating on Wednesday from the United States (US) played a role in diminishing the strength of the AUD/USD pair. Furthermore, as the US military executed another series of strikes on Houthi targets in Yemen, the heightened geopolitical tensions further bolstered the inclination towards risk aversion. This, in turn, supports the demand for the US Dollar (USD) over its counterparts, including the Australian Dollar (AUD).

Australia’s moderate data released on Thursday seem to fail to provide any support for the Australian Dollar. Consumer Inflation Expectations remained steady at 4.5% in January, while the seasonally adjusted Unemployment Rate held firm at 3.9% in line with expectations for December. However, the Employment Change data revealed a decline, with the number of employed individuals decreasing by 65.1K, contrary to the anticipated increase of 17.6K.

The US Dollar Index (DXY) retreated from a five-week high at 103.69 on downbeat US Treasury yields after US economic data on Wednesday. US Retail Sales (MoM) rose by 0.6% in December, exceeding the market consensus of 0.4 and 0.3% prior.

US Retail Sales Control Group improved to 0.8% from the previous reading of 0.5%. Moreover, Retail Sales ex Autos (MoM), excluding the key sector of motor vehicles and parts, grew by 0.4% as compared to the market anticipation of remaining consistent at 0.2%. Traders will likely watch the US housing data on Thursday.

The US Dollar cheered the investors’ sentiment as they have scaled back their expectations for the Federal Reserve’s (Fed) first rate cut in March. The probability of a rate cut has decreased to 57%, a significant drop from over 70%.

Daily Digest Market Movers: Australian Dollar continues to lose ground on risk aversion

  • Australia’s Consumer Confidence declined by 1.3% in January as compared to the previous increase of 2.7%.
  • Australian TD Securities inflation increased by 5.2% YoY in December from 4.4% in November.
  • Australia’s job advertisements improved by 0.1% in December, swinging from the previous decline of 4.6%.
  • China’s annual Gross Domestic Product (GDP) grew by 5.2% against the 5.3% expected in the fourth quarter.
  • Chinese December’s Industrial Production (YoY) increased by 6.8%. which was expected to remain consistent at 6.6%.
  • China’s Retail Sales year-over-year came at 7.4%, falling short of the market consensus of 8.0%.
  • China’s Premier Li Qiang stated on Tuesday that China’s economy grew by approximately 5.2% in 2023.
  • Federal Reserve Governor Christopher Waller cautioned that, despite positive developments in the inflation outlook, the central bank is not rushing to outline plans for rate cuts.
  • Atlanta Fed President Raphael Bostic also suggested over the weekend that premature interest rate cuts could lead to inflation fluctuations. Bostic emphasized that the deceleration of inflation towards the central bank’s 2.0% target was expected to slow down in the coming months.
  • US NY Empire State Manufacturing Index saw a significant decline, dropping to -43.7 in January, well below the expected improvement to -5.

Technical Analysis: Australian Dollar hovers around the major level at 0.6550

The Australian Dollar trades near 0.6560 on Thursday followed by the immediate support level at 0.6550. A break below the latter could influence the AUD/USD pair to navigate the region around the psychological level at 0.6500 followed by the 61.8% Fibonacci retracement level at 0.6495. On the upside, the psychological resistance could be at 0.6600 level. A break above the barrier could push the AUD/USD pair to approach the major level at 0.6650 followed by the 14-day Exponential Moving Average (EMA) at 0.6659. If the pair surpasses the 14-day EMA, it could attempt to test the psychological level at 0.6700.

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 Swiss Franc.

USD -0.13%-0.14%-0.13%-0.20%-0.22%-0.10%0.00%
EUR0.12% -0.02%0.00%-0.07%-0.09%0.04%0.13%
GBP0.14%0.02% 0.01%-0.03%-0.07%0.05%0.16%
CAD0.12%-0.01%-0.03% -0.07%-0.11%0.03%0.12%
AUD0.17%0.03%0.03%0.02% -0.04%0.09%0.19%
JPY0.22%0.09%0.06%0.08%0.01% 0.12%0.22%
NZD0.11%-0.03%-0.05%-0.04%-0.09%-0.11% 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).


What key factors drive the Australian Dollar?

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.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

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.

How does the health of the Chinese Economy impact the Australian Dollar?

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.

How does the price of Iron Ore impact the Australian Dollar?

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.

How does the Trade Balance impact the Australian Dollar?

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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