- Australian Dollar moves on an upward trajectory during a risk aversion sentiment.
- Australia’s Retail Sales (MoM) is expected to decline by 0.7% in December from the previous growth of 2.0%.
- Middle East situation has escalated due to the killings of three US service members in a drone attack on a US outpost in Jordan.
- US Dollar improves on the back of higher US bond yields.
The Australian Dollar (AUD) trades higher on Monday, recovering its recent losses in the previous session. The AUD/USD pair advances despite a stronger US Dollar (USD) amid heightened geopolitical tensions. Overnight on Sunday, three United States (US) service members were killed and at least 24 were injured in a drone attack on a US outpost in Jordan, near its border with Syria. Reports suggest that the administration of US President Joe Biden and the US military are formulating specific plans on how to respond to the attack that resulted in the death of three US troops. Possible measures being considered by the military include strikes into Iran, marking a significant escalation if implemented.
Australia’s money market holds steady due to the upbeat Crude oil prices. The Aussie Dollar (AUD) might have also gained support from recent news indicating additional stimulus measures by the People’s Bank of China (PBoC). The Reserve Bank of Australia’s (RBA) Bulletin has indicated that businesses, over the past six months, 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%. However, the RBA is anticipated to lower borrowing costs later this year. Investors await Tuesday’s Australian Retail Sales, expecting a decline of 0.7% against the previous increase of 2.0%. Furthermore, Consumer Price Index (CPI) data will be eyed on Wednesday.
The US Dollar Index (DXY) cheers the improved US Treasury bond yields, which in turn, could limit the advances of the AUD/USD pair. On Friday, the 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 Federal Open Market Committee (FOMC) statement is scheduled for Wednesday, January 31, with the consensus expecting the Committee to leave the Fed Funds rate unchanged at 5.25-5.50%. However, the market bias toward a rate cut in March may exert downward pressure on the USD. Additionally, Tuesday’s Housing Price Index and Consumer Confidence figures will be closely watched for further market insights.
Daily Digest Market Movers: Australian Dollar improves despite an improved 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.
- 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 Treasury Secretary Janet Louise Yellen has remarked that the robust performance of the US economy in the fourth quarter is viewed as a positive development and is not likely to pose challenges in terms of inflation.
- 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%.
- US Initial Jobless Claims for the week ending on January 19, surprisingly reduced to 214K compared to the expected increase of 200K from 189K prior.
Technical Analysis: Australian Dollar moves towards the psychological level at 0.6600
The Australian Dollar trades around 0.6580 on Monday, encountering initial resistance at the psychological threshold of 0.6600. This level coincides with the 23.6% Fibonacci retracement at 0.6606, aligned with the 14-day Exponential Moving Average (EMA) at 0.6610. A decisive breakthrough above this resistance area may propel the AUD/USD pair towards the key barrier at 0.6650. Conversely, downside movement could lead to a revisit of the previous week’s low at 0.6551, aligning with the significant level at 0.6550. If this support is breached, the pair could revisit the monthly low at 0.6524.
AUD/USD: Daily Chart
-638420878112162311.png)
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 Japanese Yen.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.00% | -0.02% | -0.02% | -0.16% | 0.01% | -0.11% | -0.09% | |
| EUR | 0.01% | -0.01% | 0.00% | -0.15% | 0.04% | -0.10% | -0.08% | |
| GBP | 0.01% | 0.00% | -0.01% | -0.14% | 0.05% | -0.10% | -0.07% | |
| CAD | 0.02% | 0.01% | 0.00% | -0.13% | 0.05% | -0.08% | -0.06% | |
| AUD | 0.16% | 0.13% | 0.13% | 0.13% | 0.18% | 0.04% | 0.07% | |
| JPY | -0.03% | -0.04% | 0.09% | -0.05% | -0.18% | -0.16% | -0.10% | |
| NZD | 0.11% | 0.11% | 0.09% | 0.09% | -0.04% | 0.12% | 0.04% | |
| CHF | 0.08% | 0.06% | 0.06% | 0.06% | -0.07% | 0.10% | -0.03% |
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.