Australian Dollar hovers near a five month high, focus on US Consumer Confidence
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- Australian Dollar gained ground on hawkish RBA Meeting Minutes.
- Australian central bank is expected to keep its interest rate unchanged in February’s meeting.
- PBoC kept its benchmark interest rate unchanged at 3.45% in December’s meeting.
- US Dollar lost ground on speculation of the Fed considering rate cuts in early 2024.
The Australian Dollar (AUD) trades below its five-month high at 0.6774 on Wednesday on subdued US Dollar (USD) and improved risk appetite. The AUD/USD pair received upward support from the hawkish stance revealed by the Meeting Minutes from the Reserve Bank of Australia (RBA) on Tuesday. Additionally, the upbeat commodity prices contributed support to the Australian Dollar.
Australia’s central bank emphasized the significance of waiting for additional data to assess the balance of risks. This consideration takes into account the potential for inflation to persist at elevated levels for an extended period. Additionally, the board noted that the RBA staff forecast anticipated inflation returning to the upper end of the band by the end of 2025 rather than the midpoint.
The Reserve Bank of Australia is widely anticipated to avoid a rate cut in February’s policy meeting, according to the World Interest Rate Probability Tool (WIRP). However, there is a higher probability of the central bank easing monetary tightening in the meetings scheduled for May and June.
The People’s Bank of China (PBoC) released its Interest Rate Decision on Wednesday. The Monetary Policy Committee (MPC) kept the benchmark rate unchanged at 3.45%.
The US Dollar Index (DXY) experienced a decline in the previous session, struggling to recover the recent losses amidst subdued US Treasury yields. The US Dollar encounters challenges due to the dovish sentiment surrounding the US Federal Reserve (Fed), hinting at potential monetary policy easing in early 2024.
US Housing Starts rose to 1.56M, surpassing the market consensus of 1.36M. However, Building Permits declined to 1.46M, slightly below the forecast of 1.47M. Existing Home Sales Change and the CB Consumer Confidence survey will be eyed on Wednesday.
Daily Digest Market Movers: Australian Dollar gains ground on improved risk appetite
- Westpac Leading Index (MoM) for November improved by 0.01% against the previous reading of flat 0.0%.
- The preliminary Judo Bank Composite PMI improved to 47.4 from the previous reading 46.2. The Manufacturing PMI for the same period registered 47.8, a slight increase from the prior figure of 47.7. Additionally, the Services PMI grew to 47.6 compared to the previous reading of 46.0.
- Australia’s Consumer Inflation Expectations for December eased at 4.5% against the previous figures of 4.9%.
- Australian Trade Minister Don Farrell stated that he believes China will eliminate punitive tariffs on Australian wine. China has already lifted trade restrictions on most Australian exports, signaling a gradual improvement in the relations between the two countries.
- New York Fed President John Williams offered a counterpoint in contrast to speculation about a March rate cut from the Federal Open Market Committee (FOMC). Furthermore, San Francisco Fed President Mary Daly stated that speculating on the policy stance for the upcoming year is premature.
- US S&P Global Services PMI rose to 51.3 from 50.8 prior. While Manufacturing PMI declined to 48.2 from 49.4.
Technical Analysis: Australian Dollar hovers around 0.6750 major level
The Australian Dollar trades around 0.6750 on Wednesday, below its recent five-month high of 0.6774 reached on Tuesday. The prevailing bullish sentiment suggests the potential for the AUD/USD pair to revisit the recent peak and target the key resistance at the psychological level of 0.6800. On the downside, support may be found at the seven-day Exponential Moving Average (EMA) at 0.6701, in alignment with the psychological level at 0.6700. A breach below this key support region could lead the AUD/USD pair towards the 23.6% Fibonacci retracement at 0.6656 before reaching the critical zone at 0.6650.
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 | -0.70% | -0.39% | -0.26% | -0.98% | 1.10% | -0.89% | -1.09% | |
| EUR | 0.70% | 0.31% | 0.45% | -0.28% | 1.80% | -0.18% | -0.39% | |
| GBP | 0.39% | -0.30% | 0.13% | -0.59% | 1.49% | -0.49% | -0.70% | |
| CAD | 0.26% | -0.45% | -0.14% | -0.73% | 1.35% | -0.64% | -0.84% | |
| AUD | 0.96% | 0.27% | 0.57% | 0.71% | 2.05% | 0.08% | -0.13% | |
| JPY | -1.12% | -1.84% | -1.50% | -1.36% | -2.10% | -2.00% | -2.24% | |
| NZD | 0.88% | 0.19% | 0.49% | 0.63% | -0.10% | 1.97% | -0.21% | |
| CHF | 1.10% | 0.41% | 0.71% | 0.85% | 0.15% | 2.19% | 0.23% |
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.