- Australian Dollar recovers its recent losses despite weaker Aussie consumer inflation data.
- Australian Monthly CPI (YoY) reduced to 4.3% in November, against the market expectation of 4.4%.
- US Dollar gained on risk-off sentiment despite the downbeat US bond yields.
The Australian Dollar (AUD) retraces its recent losses despite a softer-than-expected Aussie consumer inflation data released on Wednesday. However, the AUD/USD pair registered losses in the previous session as the US Dollar (USD) improved on risk-off sentiment.
Australia’s economic indicators are providing a mixed picture, with the Monthly Consumer Price Index (YoY) for November showing a slight reduction to 4.3%, falling slightly short of the market expectation of 4.4% from the previous figure of 4.9%. This indicates a modest easing in year-on-year inflationary pressures in the country.
Aussie Retail Sales (MoM) showed a rise on Tuesday, signaling increased consumer spending. Additionally, the monthly Building Permits data grew, contrary to the expected decline. These positive trends in retail sales and building permits suggest some resilience in the domestic economy.
Thursday’s release of Australian Trade Balance data for December is anticipated to show an increase from 7,129 million to 7,500 million. A higher trade balance could indicate improved export performance, contributing positively to the overall economic outlook.
The US Dollar Index (DXY) displays a sideways movement after experiencing gains despite weaker US Treasury yields on Tuesday. However, the risk-on sentiment triggered by the Federal Reserve’s (Fed) members’ remarks speculating interest rate cuts by the end of 2024 might have capped the profits of the US Dollar.
Traders are eagerly awaiting the release of December’s Consumer Price Index (CPI) data from the United States on Thursday. This economic indicator is crucial for gauging inflationary pressures and can significantly influence market expectations regarding the Fed’s monetary policy stance.
Daily Digest Market Movers: Australian Dollar faces challenges on risk-off sentiment
- Australia’s Bureau of Statistics revealed the seasonally adjusted Retail Sales (MoM) for November, which rose by 2.0% instead of the expected 1.2%, swinging from the previous 0.2% decline.
- Australia’s Building Permits (MoM) came to 1.6% from 7.5% prior against the expected decline of 2.0%.
- Chinese wealth manager Zhongzhi Enterprise Group has filed for bankruptcy liquidation, facing a staggering $64 billion in liabilities.
- Atlanta Fed President Raphael W. Bostic mentioned on Monday that inflation has declined more than initially anticipated and expressed the view of expecting two quarter-point cuts by the end of 2024. Bostic conveyed comfort with the current rate level and emphasized the importance of allowing the Fed’s tight policy time to work on cooling off inflation.
- US Fed Governor Michelle W. Bowman expressed that inflation could fall further with the policy rate held steady for some time. Bowman said that the current policy stance appears sufficiently restrictive, but it might eventually become appropriate to lower the Fed’s policy rate if inflation falls closer to the 2% target.
- US Nonfarm Payrolls rose to 216K in December, showing an improvement from the 173K reported in November. This figure surpassed the market expectation, which anticipated a rise of 170K.
- US Average Hourly Earnings (YoY) improved to 4.1% from 4.0% prior. Meanwhile, the monthly index remained consistent at 0.4% against the expected decline of 0.3%.
- US ISM Services Purchasing Managers Index (PMI) came in at 50.6 against the expected 52.6 and 52.7 prior. While the Services Employment Index reduced to 43.3 from the previous reading of 50.7.
Technical Analysis: Australian Dollar hovers below 0.6700 psychological level
The Australian Dollar trades near 0.6690 on Wednesday below a psychological resistance level of 0.6700 followed by the seven-day Exponential Moving Average (EMA) of 0.6724. A break above the latter could approach the major level at the 0.6750 level. On the downside, the 0.6650 level could act as a major support followed by the 38.2% Fibonacci retracement level at 0.6637. A collapse below the level could lead the AUD/USD pair to explore the region around the psychological level at 0.6600.
AUD/USD: Daily Chart
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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 | -0.01% | 0.03% | -0.06% | -0.25% | 0.28% | -0.03% | -0.02% | |
| EUR | 0.01% | 0.05% | -0.06% | -0.22% | 0.30% | -0.02% | 0.02% | |
| GBP | -0.04% | -0.05% | -0.10% | -0.27% | 0.24% | -0.05% | -0.03% | |
| CAD | 0.06% | 0.05% | 0.10% | -0.17% | 0.37% | 0.04% | 0.08% | |
| AUD | 0.23% | 0.22% | 0.25% | 0.15% | 0.50% | 0.20% | 0.22% | |
| JPY | -0.29% | -0.29% | -0.24% | -0.38% | -0.53% | -0.33% | -0.29% | |
| NZD | 0.01% | 0.01% | 0.06% | -0.07% | -0.21% | 0.31% | 0.01% | |
| CHF | 0.00% | 0.00% | 0.06% | -0.06% | -0.22% | 0.31% | -0.01% |
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.