Australian Dollar stretches higher on anticipation of Fed rate cuts
- Australian Dollar sustains a bullish sentiment on the dovish outlook from the Fed.
- Australian Trade Minister Don Farrell conveyed confidence that China will eliminate punitive tariffs on Australian wine.
- PBoC is scheduled to announce its Interest Rate Decision on Wednesday.
- Fed members’ comments on interest rate cut weigh on US Dollar.
The Australian Dollar (AUD) continues its winning streak that began on Wednesday. The AUD/USD pair received upward support in anticipation of rate cuts by the Federal Reserve (Fed), which weighs on the US Dollar (USD).
Australia’s economy showcases resilience, buoyed by strong employment outcomes and increasing incomes, as data released last week indicates. Additionally, the enhanced Purchasing Managers Index (PMI) data for December has bolstered the Australian Dollar.
Traders are expected to observe the Meeting Minutes from the Reserve Bank of Australia (RBA) set to be released on Tuesday, alongside Building Permits and Housing Starts data from Australia. Furthermore, on Wednesday, the People’s Bank of China (PBoC) is scheduled to announce its Interest Rate Decision, adding to the key events influencing the Aussie Dollar.
Australian Trade Minister Don Farrell expressed confidence on Sky News TV that China will remove punitive tariffs on Australian wine. Notably, China has already lifted trade restrictions on the majority of Australian exports that had been previously imposed, indicating a gradual improvement in relations between the two countries.
The US Dollar Index (DXY) loses its ground and retraces the recent gains on Monday. The DXY rebounded from a four-month low at 101.77 marked on Thursday, having received support from the improved short-term yield on the US Treasury bond. The 2-year US bond yield improved to 4.48% on Friday.
Additionally, the moderate preliminary Purchasing Managers Index (PMI) for December contributed support for the USD. S&P Global Services PMI rose to 51.3 from 50.8 prior. While Manufacturing PMI declined to 48.2 from 49.4. Investors will focus on Consumer Confidence and Existing Home Sales Change on Wednesday.
However, the Greenback encounters challenges stemming from a weakened sentiment, primarily influenced by the Federal Open Market Committee’s (FOMC) dovish statement. Additionally, dovish remarks from various Fed members exert pressure on the Greenback.
Atlanta Fed President Raphael Bostic, on Friday, anticipated a potential interest rate cut in the third quarter of 2024 if inflation follows the expected trajectory. Furthermore, Chicago Fed President Austan Goolsbee did not rule out the possibility of a rate cut at the Fed’s meeting next March.
Daily Digest Market Movers: Australian Dollar seems hawkish as economy shows resilience
- 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%.
- The seasonally adjusted Aussie Employment Change (Nov) improved substantially to 61.5K compared to the expected 11.0K. Unemployment Rate rose to 3.9% from 3.7% previously.
- The People’s Bank of China (PBoC) kept its 1-year Medium-term Lending Facility (MLF) rate unchanged at 2.5%. Additionally, PBoC injected 1.45 trillion Yuan to bolster bank liquidity as 650 billion Yuan worth of MLF loans were matured.
- The National Bureau of Statistics of China revealed that Industrial Production (YoY) improved to 6.6% in November from 4.6% prior, exceeding the market expectation of 5.6%. However, China Retail Sales (YoY) rose to 10.1% from 7.6% prior, falling short of the market consensus of a 12.5% rise.
- Federal Reserve (Fed) maintained interest rates at 5.5% in its December policy meeting as expected. Markets are now projecting three rate cuts for 2024.
- US Retail Sales (MoM) rose 0.3% in November, compared to the expected decline of 0.1%. Initial Jobless Claims for the week ending on December 8 came in at 202K against the 220K expected.
Technical Analysis: Australian Dollar hovers around the 0.6700 post testing recent high
The Australian Dollar hovers around 0.6700 on Monday, having recently tested a five-month high at 0.6728 on Friday. A prevailing bullish sentiment could propel the AUD/USD pair to surpass the recent high and approach the pivotal barrier at 0.6750. On the downside, noteworthy support lies at 0.6650, followed by the 23.6% Fibonacci retracement at 0.6619, and subsequently reaching the psychological support at 0.6600, aligned with the 21-day Exponential Moving Average (EMA) at 0.6597.
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 US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.17% | -0.17% | -0.04% | -0.18% | -0.06% | -0.43% | -0.15% | |
| EUR | 0.16% | 0.00% | 0.13% | -0.05% | 0.09% | -0.26% | 0.01% | |
| GBP | 0.16% | 0.01% | 0.12% | -0.05% | 0.09% | -0.26% | 0.03% | |
| CAD | 0.04% | -0.13% | -0.13% | -0.17% | -0.04% | -0.39% | -0.10% | |
| AUD | 0.21% | 0.04% | 0.04% | 0.17% | 0.13% | -0.21% | 0.07% | |
| JPY | 0.07% | -0.10% | -0.09% | 0.05% | -0.11% | -0.34% | -0.08% | |
| NZD | 0.40% | 0.26% | 0.26% | 0.39% | 0.22% | 0.36% | 0.28% | |
| CHF | 0.14% | -0.02% | -0.03% | 0.11% | -0.07% | 0.07% | -0.28% |
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).
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.