Australian Dollar retreats from a five-month high ahead of US data releases
- Australian Dollar continues to reach fresh highs on the subdued US Dollar.
- Australian robust economic conditions influence the RBA to maintain its hawkish stance.
- China’s NDRC Chairman, Zheng Shanjie mentioned that China will strive to expand domestic demand.
- Investors await US data releases to gain further impetus on the Fed’s stance.
The Australian Dollar (AUD) continues to gain ground on Thursday as the US Dollar (USD) fell below the 101.00 mark, influenced by subdued US Treasury yields. The AUD/USD pair receives additional upward support from improved risk appetite, with investors speculating on a dovish stance from the Federal Reserve (Fed) regarding interest rates in early 2024.
Australia’s inflation and housing prices are displaying resilience, potentially influencing the Reserve Bank of Australia (RBA) to maintain its hawkish stance. The latest RBA forecasts are nearing the upper boundary of the 2-3% inflation target by the end of the year 2025. In its recent Meeting Minutes, the RBA emphasized the importance of carefully examining additional data to assess the balance of risks before making future interest rate decisions. There is widespread anticipation that the RBA will refrain from a rate cut in February’s policy meeting.
China’s National Development and Reform Commission’s (NDRC) Chairman, Zheng Shanjie, has expressed the country’s commitment to implementing familiar policy measures. In a meeting held on Tuesday, Zheng mentioned that China will strive to expand domestic demand, ensuring a speedy economic recovery, and promoting stable growth.
The US Dollar Index (DXY) experiences continued weakness as the market anticipates potential rate cuts by the Federal Reserve (Fed) in the first quarter of the upcoming year. This expectation stems from the Fed’s policy pivot in December, where the dot plot of rate expectations suggested the possibility of up to three cuts, amounting to a total of 75 basis points in rate reductions by the end of 2024.
US Richmond Fed Manufacturing Index recorded a significant decline of 11 points in December, exceeding the market’s expectation of a 7-point drop. This comes after a 5-point decrease in November. The unexpected contraction in the manufacturing index may impact market perceptions of economic conditions. Investors will likely turn their attention to Thursday’s Initial Jobless Claims and Pending Home Sales releases.
Daily Digest Market Movers: Australian Dollar extends gains on improved risk appetite
- 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.
- 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.
- Former Dallas Federal Reserve President Robert Kaplan emphasized that he believed that the Federal Reserve is cautious to avoid a scenario where the monetary tightening becomes overly restrictive.
- 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. Meanwhile, 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 moves below 0.6850 major level
The Australian Dollar hovers around 0.6850 on Thursday. The prevailing bullish sentiment suggests a potential for the AUD/USD pair to approach the key resistance at the psychological level of 0.6900. On the downside, support levels are identifiable at the seven-day Exponential Moving Average (EMA) at 0.6810 before the psychological support at 0.6800. A breach below this crucial support zone could potentially lead the AUD/USD pair to navigate the 23.6% Fibonacci retracement level at 0.6729.
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 US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.79% | -0.71% | -0.50% | -0.64% | -0.88% | -0.77% | -1.96% | |
| EUR | 0.87% | 0.10% | 0.41% | 0.20% | -0.07% | 0.12% | -1.07% | |
| GBP | 0.84% | -0.16% | 0.46% | 0.06% | -0.18% | 0.11% | -1.34% | |
| CAD | 0.51% | -0.60% | -0.26% | -0.39% | -0.37% | -0.10% | -1.59% | |
| AUD | 0.65% | -0.20% | -0.07% | 0.16% | -0.26% | -0.08% | -1.48% | |
| JPY | 0.88% | 0.11% | -0.02% | 0.68% | 0.30% | 0.29% | -1.20% | |
| NZD | 0.77% | -0.07% | 0.08% | 0.27% | 0.09% | -0.18% | -1.11% | |
| CHF | 2.10% | 1.03% | 1.03% | 1.56% | 1.52% | 1.18% | 1.16% |
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).
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank.
If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure.
Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.