- Australian Dollar retraces its recent losses amid a stable US Dollar.
- Australia’s currency is strengthened as RBA’s Bullock did not rule anything in or out regarding future policy actions.
- Chinese CPI (YoY) declined by 0.8% against the anticipated decline of 0.5% and the previous decline of 0.3%.
- Fed members commit to keeping interest rates elevated until inflation sustainably returns to the 2% target.
The Australian Dollar (AUD) recovers its recent losses on Thursday, buoyed by a risk-on sentiment in the market. Despite the US Federal Reserve (Fed) emphasizing its commitment to keeping interest rates elevated until inflation sustainably returns to the 2% target, the US Dollar (USD) faces challenges. Moreover, improved conditions in the Australian money market are lending support to the Aussie Dollar (AUD), thereby bolstering the AUD/USD pair.
Australian currency is bolstered by hawkish remarks from Reserve Bank of Australia (RBA) Governor Michele Bullock following the interest rate decision on Tuesday. The RBA opted to keep its Official Cash Rate (OCR) unchanged at 4.35%.
Governor Bullock refrained from making explicit statements regarding future policy actions, neither ruling anything in nor out. However, futures markets are currently pricing in two potential interest rate cuts by the RBA this year, with the first expected in September.
Chinese Consumer Price Index (CPI) grew by 0.3% MoM in January, falling short of the expected 0.4%. However, it has been improved from the previous reading of 0.1%. The annual CPI declined by 0.8%, exceeding the anticipated decline of 0.5% and the previous decline of 0.3%. Meanwhile, Producer Price Index (YoY) declined by 2.5%, lower than the expected 2.6% decline.
The US Dollar Index (DXY) seems to continue its downward trend for the third consecutive session, pressured by a correction in US Treasury yields. However, Federal Reserve Chair Jerome Powell dismissed the possibility of a rate cut in March. Traders will focus on jobs data on Thursday, including US Initial Jobless Claims for the week ending on February 2.
Federal Reserve Governor Adriana Kugler expressed satisfaction with the significant progress on inflation during remarks on Wednesday, expressing optimism that this progress will persist. Meanwhile, Fed Boston President Susan Collins, speaking at the Boston Economic Club, indicated the likelihood of rate cuts later in the year if the economy aligns with expectations.
Daily Digest Market Movers: Australian Dollar improves amid a steady US Dollar
- Australia’s December AiG Industry Index came in at -27.3 as compared to the -22.4 prior.
- Australia’s Retail Sales (QoQ) improved with a 0.3% rise in the fourth quarter compared to the previous growth of 0.2%.
- Australian Trade Balance (MoM) for January was reduced to the figure of 10,959M compared to the revised figure of 11,764M in December.
- Australia’s Judo Bank Composite Purchasing Managers Index (PMI) improved to 49 in January from 48.1 prior. The Services PMI saw an improvement, rising to 49.1 from the previous figure of 47.9.
- Chinese Caixin Services PMI reduced to 52.7 in January from the previous reading of 52.9.
- The Atlanta Fed’s wage growth tracker has declined to 5.0% in January from 5.2% reported in December. This represents the lowest growth rate since December 2021, when it stood at 4.5%.
- US MBA Mortgage Applications rose to 3.7% for the week ending on February 2 from the previous decline of 7.2%.
- US Census Bureau showed that Goods and Services Trade Balance declined by 62.2 billion in December, as expected. The previous decline was 61.9 billion.
- 10-year US Note was auctioned at the average yield of 4.093% against the 4.024% prior.
Technical Analysis: Australian Dollar maintains position below major barrier of 0.6550
The Australian Dollar trades around 0.6530 on Thursday, slightly below the immediate resistance level at 0.6550. A breakthrough above this level could potentially catalyze further upward movement for the AUD/USD pair, with potential targets including the 23.6% Fibonacci retracement level at 0.6563 and the 21-day Exponential Moving Average (EMA) at 0.6579. On the downside, key support is anticipated at the psychological level of 0.6500. Additional support levels include the weekly low at 0.6468, followed by a major support level at 0.6450.
AUD/USD: Daily Chart
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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 Swiss Franc.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.03% | -0.07% | -0.12% | -0.30% | -0.10% | -0.87% | 0.67% | |
| EUR | 0.03% | -0.03% | -0.09% | -0.27% | -0.07% | -0.83% | 0.70% | |
| GBP | 0.07% | 0.03% | -0.06% | -0.25% | -0.05% | -0.81% | 0.73% | |
| CAD | 0.12% | 0.09% | 0.06% | -0.18% | 0.01% | -0.74% | 0.79% | |
| AUD | 0.30% | 0.28% | 0.25% | 0.19% | 0.21% | -0.55% | 0.97% | |
| JPY | 0.10% | 0.05% | 0.02% | -0.01% | -0.20% | -0.77% | 0.77% | |
| NZD | 0.87% | 0.83% | 0.80% | 0.74% | 0.55% | 0.77% | 1.52% | |
| CHF | -0.68% | -0.71% | -0.73% | -0.79% | -0.97% | -0.76% | -1.54% |
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.