Australian Dollar consolidates near a major level amid stable US Dollar, US data eyed
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- Australian Dollar gains ground amid weaker US Dollar.
- Australian central bank’s future interest rate decisions will be data-dependent.
- Downbeat US economic data reinforces the bets on a dovish Fed outlook.
The Australian Dollar (AUD) retraces its recent losses on Friday, benefiting from a subdued US Dollar (USD). The AUD/USD pair experienced losses in the previous session as the Greenback gained some ground, possibly linked to upbeat US Treasury yields. However, the Aussie Dollar shows strength on the back of improved risk appetite, as market participants anticipate a dovish stance from the Federal Reserve (Fed) concerning interest rates in early 2024.
Australia’s recent meeting minutes highlighted the Reserve Bank of Australia’s (RBA) emphasis on carefully examining additional data to assess the balance of risks before making future interest rate decisions. The resilience displayed in inflation and housing prices is a crucial factor in this assessment. The RBA’s forecast approaching the upper boundary of the 2-3% inflation target by the end of 2025 indicates a cautious but optimistic outlook. The expectation that the RBA will likely avoid a rate cut in the upcoming February policy meeting provides support for keeping the Australian Dollar (AUD) higher.
The US Dollar Index (DXY) posted gains on Thursday, although less-than-optimistic US data may have curbed the Greenback’s ascent, potentially influencing the Federal Reserve to take a more cautious stance in upcoming monetary policy decisions. The unexpected rise in US Initial Jobless Claims to 218K for the week ending December 23, surpassing the expected 210K, and the unchanged Pending Home Sales (MoM) at 0.0% in November against the anticipated 1.0% increase, contribute to this narrative. Traders are now keeping a close eye on Friday’s release of the Chicago Purchasing Managers’ Index for December for further insights.
Daily Digest Market Movers: Australian Dollar improves on risk appetite, hawkish RBA
- 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 National Development and Reform Commission’s (NDRC) Chairman, Zheng Shanjie, mentioned in a meeting held on Tuesday that China will strive to expand domestic demand, ensuring a speedy economic recovery, and promoting stable growth.
- 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 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.
- US Housing Price Index (MoM) contracted to 0.3% from 0.7% prior, falling short of 0.5% expectations in October.
Technical Analysis: Australian Dollar treads water below 0.6850 major level
The Australian Dollar hovers around 0.6840 on Friday. The prevailing bullish sentiment suggests a potential for the AUD/USD pair to surpass again the major resistance level at 0.6850 following the psychological level of 0.6900. On the downside, the AUD/USD pair could find the key support 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 pair to navigate the 23.6% Fibonacci retracement level at 0.6725.
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 weakest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.03% | -0.13% | -0.03% | -0.21% | -0.01% | -0.27% | -0.04% | |
| EUR | -0.03% | -0.16% | -0.06% | -0.24% | -0.04% | -0.30% | -0.08% | |
| GBP | 0.13% | 0.16% | 0.10% | -0.07% | 0.12% | -0.13% | 0.10% | |
| CAD | 0.02% | 0.06% | -0.11% | -0.18% | 0.01% | -0.25% | 0.00% | |
| AUD | 0.21% | 0.24% | 0.07% | 0.18% | 0.19% | -0.08% | 0.18% | |
| JPY | 0.01% | 0.06% | -0.12% | -0.01% | -0.19% | -0.26% | -0.02% | |
| NZD | 0.27% | 0.31% | 0.13% | 0.24% | 0.06% | 0.26% | 0.24% | |
| CHF | 0.03% | 0.08% | -0.10% | 0.01% | -0.18% | 0.04% | -0.24% |
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.