Australian Dollar marks a fresh five-month high amid stable US Dollar
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- Australian Dollar posts fresh five-month high on subdued Greenback.
- Australian central bank could be hawkish in early 2024 as inflation remains solid.
- China’s Jan-Nov Industrial Profits (YoY) declined by 4.4%.
- US Dollar faces challenges on speculation of the Fed going softer in the upcoming year.
The Australian Dollar (AUD) moves upward on Wednesday on improved risk appetite while the US Dollar (USD) could show signs of weakness in the speculation on a dovish stance of the Federal Reserve (Fed) on interest rates. The AUD/USD pair trades below its recent high of 0.6829, a mark untouched for nearly five months.
Australia’s central bank reflects a hawkish outlook, driven by robust inflation and stable housing prices, contributing to the resilience of the Australian Dollar. The upcoming year might witness a tug-of-war between expectations of rate cuts and the Reserve Bank of Australia’s (RBA) resistance. With the latest RBA forecasts approaching the upper boundary of the 2-3% inflation target by the close of 2025, the RBA may still be open to additional deliberation.
China’s year-on-year Industrial Profits for January to November registered a decline of 4.4%, indicating a slowdown and highlighting the need for additional policy support from Beijing to bolster growth in the world’s second-largest economy. China takes center stage in shaping the global economic landscape in 2024, marked by stable inflation and low borrowing costs. The world is keenly observing as the global economy gains traction, particularly with the prospect of economic stimulus from China. Such developments could sway the Reserve Bank of Australia (RBA) to maintain its hawkish stance, guided by trade relations between the two countries.
The US Dollar Index (DXY) is encountering downward pressure amid growing speculations of potential easing by the US Federal Reserve (Fed). This sentiment is further exacerbated by the decline in US Treasury yields, adding to the factors undermining the strength of the Greenback.
Former Dallas Federal Reserve President Robert Kaplan shared his insights with the media on Tuesday. Kaplan emphasized the Federal Reserve’s previous error of maintaining excessive accommodation for an extended period, even as the economy showed signs of improvement. He believed that the central bank is cautious not to repeat the same mistake on the opposite end, avoiding a scenario where it becomes overly restrictive.
Daily Digest Market Movers: Australian Dollar rises on hawkish RBA, weaker Greenback
- RBA Private Sector Credit (MoM) demonstrated a 0.4% increase in November, surpassing the previous rise of 0.3%. However, the Year-over-Year data indicated a decrease of 4.7%, compared to the previous 4.8% rise.
- RBA highlighted the examination of additional data to assess the balance of risks before deciding on future interest rates in its recent Meeting Minutes.
- US Housing Price Index (MoM) contracted to 0.3% from 0.7% prior, falling short of 0.5% expectations in October.
- US Bureau of Economic Analysis (BEA) reveals that the Core Personal Consumption Expenditures – Price Index (YoY) grew at 3.2% in November, falling short of the 3.3% expectations and 3.4% prior. While the MoM data showed consistency at 0.1% against the market expectation of 0.2%.
- US Gross Domestic Product Annualized grew at a rate of 4.9% in Q3, slightly below the expected consistency of 5.2%.
Technical Analysis: Australian Dollar trades near 0.6820 below a five-month high
The Australian Dollar hovers around 0.6820, slightly below its five-month high of 0.6829 on Monday. The prevailing bullish sentiment suggests a potential for the AUD/USD pair to approach the key resistance at the major level of 0.6850. On the downside, support levels are identifiable at the psychological level of 0.6800, followed by the seven-day Exponential Moving Average (EMA) at 0.6785. A breach below this crucial support zone could lead the AUD/USD pair towards the psychological support at 0.6700 before encountering the 23.6% Fibonacci retracement at 0.6693.
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 .
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.10% | -0.01% | -0.01% | -0.12% | 0.01% | -0.07% | 0.01% | |
| EUR | -0.10% | -0.10% | -0.09% | -0.21% | -0.07% | -0.17% | -0.10% | |
| GBP | 0.01% | 0.09% | 0.00% | -0.11% | 0.02% | -0.07% | 0.00% | |
| CAD | 0.01% | 0.10% | 0.00% | -0.11% | 0.03% | -0.06% | 0.01% | |
| AUD | 0.12% | 0.22% | 0.11% | 0.11% | 0.12% | 0.05% | 0.13% | |
| JPY | -0.01% | 0.07% | -0.04% | -0.03% | -0.14% | -0.11% | -0.03% | |
| NZD | 0.07% | 0.16% | 0.08% | 0.04% | -0.05% | 0.10% | 0.10% | |
| CHF | -0.01% | 0.10% | 0.00% | -0.01% | -0.11% | 0.03% | -0.07% |
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.