- Australian Dollar appreciates for the second straight session amid a stable US Dollar.
- Australia’s Retail Sales (MoM) declined by 2.7% in December against the expected fall of 0.9% and the previous growth of 2.0%.
- US Dollar faced a challenge on lower US yields due to the healthier US balance sheet.
- US Treasury Department plans to borrow $760 billion in Q1, lower than the previous estimate of $816 billion in October.
The Australian Dollar (AUD) continues to gain ground on Tuesday amid a stable US Dollar (USD). The AUD/USD pair received upward support as United States (US) bond yields declined in the previous session, a trend attributed to the healthier US balance sheet. Since October 2023, the decrease in yields has contributed to the sustainability of the US Treasury, and stronger economic growth has led to improved tax receipts. The US Treasury Department recently announced plans to borrow $760 billion in the first quarter, which is lower than the previous estimate of $816 billion in October.
Australia’s Bureau of Statistics released the seasonally adjusted Retail Sales (MoM) for December on Tuesday, indicating a decline of 2.7%. This figure contrasted with the expected fall of 0.9% and marked a notable reversal from the previous growth of 2.0%. Surprisingly, the Aussie Dollar (AUD) strengthened despite the release of disappointing consumer spending data. The AUD’s resilience could be attributed to positive sentiments stemming from news about additional stimulus measures in China, consequently motivating the AUD/USD pair. Furthermore, the Australian Consumer Price Index (CPI) data will be eyed on Wednesday, which is expected to decline by 0.8% in the fourth quarter from 1.2% prior.
The US Dollar Index (DXY) shows stability after experiencing losses on Monday, attributed to improved US Treasury yields. The risk aversion sentiment could intensify as the administration of US President Joe Biden is anticipated to authorize military strikes in response to the recent drone attack on a US outpost in Jordan, resulting in the death of three US troops and injuries to at least 24.
Investors will closely monitor the Federal Open Market Committee (FOMC) statement scheduled for Wednesday, January 31. The consensus expectation is that the Fed Funds rate will remain unchanged at 5.25-5.50%. However, the prevailing market bias toward a potential rate cut in March may exert downward pressure on the US Dollar (USD). Ahead of the FOMC statement, Tuesday’s releases of the Housing Price Index and Consumer Confidence figures will be closely watched for further insights into the market.
Daily Digest Market Movers: Australian Dollar advances amid a stable US Dollar
- Australia’s Manufacturing PMI increased from 47.6 to 50.3, showcasing improvement. Services PMI also saw an uptick, rising from 47.1 to 47.9. The Composite PMI registered an increase, reaching 48.1 compared to December’s 46.9.
- The Reserve Bank of Australia’s (RBA) Bulletin has indicated that over the past six months, businesses generally expect a moderation in their price growth, with prices anticipated to remain above the RBA’s inflation target range of 2.0–3.0%.
- Chinese financial media reported that the People’s Bank of China (PBoC) may cut the Medium-term Lending Facility (MLF) rate in the current quarter. The announcement follows the recent statement by PBoC Governor Pan Gongsheng, who revealed that the Bank would reduce the Required Reserve Ratio (RRR) by 50 basis points starting from February 5th.
- US Core Personal Consumption Expenditures Price Index (PCE) for December showed a 0.2% monthly increase, in line with expectations, compared to 0.1% in the previous reading. The yearly Core PCE rose 2.9%, falling short of the 3.0% expected and the previous reading of 3.2%.
- The US Gross Domestic Product Annualized (Q4) reported a reading of 3.3% against the previous reading of 4.9%, exceeding the market consensus of 2.0%.
Technical Analysis: Australian Dollar moves above the psychological level of 0.6600
The Australian Dollar trades around 0.6620 on Tuesday, encountering initial resistance at the 21-day Exponential Moving Average (EMA) at 0.6629 followed by the key resistance level at 0.6650. A firm breakthrough above the resistance level could improve the sentiment for the AUD/USD pair to surpass the 38.2% Fibonacci retracement level at 0.6657 following the psychological barrier at 0.6700. On the downside, the AUD/USD pair could find immediate support at the psychological level at 0.6600. A break below the latter could push the pair to revisit the previous week’s low at 0.6551, aligning with the significant level at 0.6550. The pair could retest the monthly low at 0.6524 if this support is breached.
AUD/USD: Daily Chart
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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 Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.02% | 0.02% | -0.05% | 0.02% | -0.03% | -0.01% | 0.04% | |
| EUR | -0.02% | 0.00% | -0.07% | 0.00% | -0.07% | -0.04% | 0.01% | |
| GBP | -0.03% | 0.00% | -0.08% | -0.01% | -0.06% | -0.04% | 0.01% | |
| CAD | 0.05% | 0.08% | 0.08% | 0.06% | 0.00% | 0.03% | 0.09% | |
| AUD | -0.02% | 0.00% | 0.00% | -0.06% | -0.05% | -0.03% | 0.02% | |
| JPY | 0.05% | 0.07% | 0.08% | 0.00% | 0.04% | 0.03% | 0.08% | |
| NZD | -0.01% | 0.04% | 0.04% | -0.03% | 0.03% | -0.03% | 0.05% | |
| CHF | -0.04% | -0.01% | -0.01% | -0.08% | -0.01% | -0.08% | -0.05% |
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
What is the Reserve Bank of Australia and how does it influence the Australian Dollar?
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.
How does inflation data impact the value of the Australian Dollar?
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.
How does economic data influence the value of the Australian 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.
What is Quantitative Easing (QE) and how does it affect the Australian Dollar?
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.
What is Quantitative tightening (QT) and how does it affect the Australian Dollar?
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.
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