Australian Dollar extends its gains on higher ASX 200 amid a stable US Dollar

■  Australian Dollar strengthens on market sentiment regarding the probability of no imminent RBA rate cuts.

■  Australia’s ASX 200 moves higher following the overnight surge on Wall Street.

■  US Dollar received upward support as mixed US PMI data indicated economic expansion.

■  US Initial Jobless Claims declined to 201K, against the expected 218K and 213K prior.

The Australian Dollar (AUD) continues to move in a positive direction, influenced by the S&P/ASX 200 index moving higher following the overnight surge on Wall Street. The upbeat quarterly report from Nvidia propelled the S&P 500 and the Nasdaq Composite to new all-time closing highs.

Australian Dollar (AUD) received upward support from domestic data indicating that private sector activity returned to growth in February for the first time in five months, driven by a strong expansion in the services sector. Additionally, the Aussie Dollar benefited from market sentiment regarding the probability of no imminent rate cuts following the recent Meeting Minutes from the Reserve Bank of Australia (RBA).

The US Dollar Index (DXY) received upward support as employment data from the United States showed strength, with the US Bureau of Labor Statistics (BLS) reporting that weekly Initial Jobless Claims dropped below consensus expectations. Additionally, the mixed preliminary S&P Global Purchasing Managers Index (PMI) data indicated economic expansion, reinforcing the case for the Federal Reserve to maintain elevated interest rates for a longer duration to address inflationary pressures. Additionally, Hawkish remarks from US Federal Reserve officials, emphasizing the avoidance of interest rate cuts in the near term, could further bolster support for the US Dollar (USD).

Daily Digest Market Movers: Australian Dollar appreciates on higher money market

Judo Bank Australia Composite PMI increased to 51.8 in February from the previous reading of 49, indicating the first month of expansion in the Australian private sector after a five-month period of contraction.

Judo Bank Australia Services PMI rose to 52.8 from the previous reading of 49.1. Manufacturing PMI fell to 47.7 from 50.1 prior due to a significant drop in new orders.

Australian Wage Price Index (QoQ) grew by 0.9% in the fourth quarter as expected, lower than the previous rise of 1.3%. The index rose by 4.2% year-over-year, surpassing the market expectation to be unchanged at 4.1%.

Westpac Leading Index (MoM) declined by 0.1% in January against the previous reading of flat 0.0%.

RBA’s Meeting Minutes revealed that the Board deliberated on the possibility of raising rates by 25 basis points (bps) or keeping rates unchanged. While recent data indicated that inflation would return to target within a reasonable timeframe, it was acknowledged that this process would "take some time." Consequently, the board agreed that it was prudent not to rule out another rate hike.

S&P's analysis of the FOMC minutes suggests that inflation is expected to continue cooling in the upcoming months, despite the ongoing uneven disinflationary trends. They maintain their outlook for monetary policy in 2024, anticipating no changes. S&P predicts that the Federal Reserve will likely reduce its policy rate by 25 basis points at its June meeting, with further cuts totaling 75 basis points by the end of the year.

Richmond Federal Reserve Bank President Thomas Barkin told Reuters that the United States still has "ways to go" to achieve a soft landing. He highlighted the overall positive trajectory of US data concerning inflation and employment. He suggested that the US is nearing the end of its inflation challenge, with the pressing question being the duration until resolution.

Federal Reserve Governor Christopher J. Waller stated that the initiation of policy easing and the number of rate cuts will hinge on incoming data. The Committee is prepared to wait a little longer before considering monetary policy easing.

Philadelphia Fed President Patrick T. Harker, in a speech at the University of Delaware, expressed the view that the Federal Reserve can maintain the current rates for the time being, with no urgency to implement cuts. He emphasized that future Fed actions will be driven by data, with no forecast for a rate cut in May.

Federal Reserve Governor Lisa D. Cook, participating in a moderated discussion at a Conference hosted by Princeton University in New Jersey, remarked that risks to achieving employment and inflation goals have moved into better balance. She expressed a preference for greater confidence that inflation is converging to 2% before initiating rate cuts. Cook acknowledged that the policy rate will eventually need adjustment as the disinflation outlook becomes more sustainable.

S&P Global US Services PMI posted the reading of 51.3 in February, against the expected 52.0 and 52.5 prior.

S&P Global US Manufacturing PMI improved to 51.5, exceeding the expected 50.5 and 50.7 prior.

S&P Global US Composite PMI declined to 51.4 in February from the previous reading of 51.0.

US Initial Jobless Claims declined to 201K for the week ending on February 16, against the market expectation of 218K and the previous figure of 213K.

Existing Home Sales Change (MoM) rose by 3.1% in January, from the previous decline of 0.8%.

Technical Analysis: Australian Dollar trades around the weekly high near 0.6570

The Australian Dollar trades around the major level at 0.6570 on Friday, which is followed by the weekly high at 0.6595 and a psychological barrier at 0.6600 level. Further resistance will be at 38.2% Fibonacci retracement level of 0.6606 aligned with February’s high at 0.6610 level. A break above the latter could support the AUD/USD pair to explore the region around the major level of 0.6650. 

On the downside, the immediate support appears at the 0.6550 level. A break below this major level could retest the weekly low at 0.6521 followed by the psychological support level of 0.6500.

AUD/USD: Daily Chart