Australian Dollar extends its losses on the lower money market, US Dollar remains stable

Source Fxstreet
  • Australian Dollar loses ground on lower S&P/ASX 200, following overnight losses on Wall Street.
  • Australian Weekly Consumer Confidence remained nearly unchanged at 83.2.
  • US Dollar could face a challenge as US yields retrace recent gains.
  • US President Joe Biden will meet the four Congressional leaders to discuss the bipartisan national security supplemental.

The Australian Dollar (AUD) continues its downward trend for the second consecutive day due to the lower S&P/ASX 200, tracking overnight losses on Wall Street. Declines in property and mining stocks outweigh gains in consumer-related sectors, contributing to overall market pessimism. Additionally, investors are exercising caution ahead of key economic data releases from Australia and the United States (US), seeking insights into the monetary policy outlook for both countries.

Australian Consumer Confidence, as measured by ANZ-Roy Morgan, remained nearly unchanged at 83.2 for the current week. This marks the 56th consecutive week that the index has remained below the threshold of 85. The index sits just 0.4 points below the 2024 weekly average of 83.6. Investors are now looking forward to the release of the Australian Monthly Consumer Price Index on Wednesday and Retail Sales data on Thursday for further insights into the economic landscape.

The US Dollar Index (DXY) remains steady, having stabilized after recent declines despite the uptick in US yields, possibly reflecting improved risk sentiment. The Federal Open Market Committee (FOMC) minutes suggested a reaffirmation of a data-dependent approach by the Federal Reserve (Fed), signaling a more dovish stance that has put pressure on the US Dollar (USD). Investors will closely watch key economic indicators including Gross Domestic Product Annualized (Q4), Core Personal Consumption Expenditures, and the Fed Monetary Policy Report scheduled for later this week.

Daily Digest Market Movers: Australian Dollar loses ground on lower S&P/ASX 200

  • Economists at TD Securities have adjusted their forecasts for the Reserve Bank of Australia's (RBA) cash rate decisions. While they still anticipate a total of 100 basis points (bps) in rate cuts throughout the easing cycle, they now expect the first 25 bps cut to occur in November, compared to their previous projection of August.
  • 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.
  • China's Commerce Ministry stated on Monday, "The US's assertion that China has generated 'overcapacity' is inaccurate, highlighting the unilateral and hegemonic actions of the US."
  • Chinese authorities announced that the Fujian Coast Guard is increasing patrols in waters adjacent to Taiwan's Kinmen islands to effectively uphold operational order in the relevant maritime areas, and ensure the safety of fishermen's lives and property."
  • Economists at Commerzbank have adjusted their forecast, now expecting the first interest rate cut at the Federal Open Market Committee (FOMC) meeting in June instead of May. This adjustment is attributed to the reduced likelihood of a recession. Consequently, they anticipate a less aggressive easing of monetary policy compared to their previous projections. Instead of eight rate cuts, they now anticipate five, with three expected in 2024 and two in 2025.
  • President of the New York Fed, John C. Williams, discussed his perspective on the Fed's interest rate stance during an interview with Axios. He suggested that rate cuts could be on the horizon later this year, but emphasized that they would only occur if deemed appropriate. Williams noted that his outlook on the economy remains largely unchanged following the release of January's economic data.
  • Federal Reserve Governor Christopher J. Waller recently suggested that the Federal Reserve should postpone any rate cuts for at least a few more months to assess whether January's high inflation report was an anomaly.
  • US President Joe Biden will convene a meeting with the four Congressional leaders at the White House on Tuesday. The focus of the discussions will revolve around passing the bipartisan national security supplemental and ensuring the continued operation of the government. With the shutdown deadline looming on Friday, addressing these matters takes on heightened urgency.
  • Santander US Capital Markets suggested in a note, as reported by The Wall Street Journal, that the Federal Reserve's FOMC might postpone rate cuts until after the US election. They anticipate that the US economy and inflation will continue to surpass expectations, which could justify delaying monetary easing.
  • US New Home Sales Change (MoM) grew by 1.5% in January, falling short of the previous growth of 7.2%.
  • US New Home Sales (MoM) came in at 0.661M in January against the expected 0.680M and 0.664 prior.

Technical Analysis: Australian Dollar extends losses to 0.6530

The Australian Dollar trades around 0.6530 on Tuesday followed by psychological support at 0.6500. A break below this psychological support could put prompt the AUD/USD pair to navigate the area around the major support of 0.6450 level and the February’s low at 0.6442. On the upside, the immediate resistance zone appears at the 23.6% Fibonacci retracement at 0.6543 and the major level of 0.6550. A break above the 50-day Exponential Moving Average (EMA) at 0.6572 could lead the pair to test the further resistance zone around the psychological level of 0.6600 and 38.2% Fibonacci retracement at 0.6606.

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 weakest against the Japanese Yen.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.02% 0.07% 0.03% 0.10% -0.01% 0.13% 0.06%
EUR -0.03%   0.04% 0.00% 0.07% -0.03% 0.08% 0.03%
GBP -0.06% -0.04%   -0.04% 0.03% -0.07% 0.05% -0.01%
CAD -0.02% -0.01% 0.03%   0.06% -0.05% 0.09% 0.03%
AUD -0.09% -0.05% -0.04% -0.07%   -0.10% 0.02% -0.02%
JPY 0.02% 0.05% 0.10% 0.04% 0.14%   0.14% 0.07%
NZD -0.13% -0.08% -0.08% -0.10% -0.04% -0.14%   -0.03%
CHF -0.06% -0.03% 0.01% -0.03% 0.04% -0.06% 0.06%  

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).

Australian Dollar FAQs

What key factors drive the Australian Dollar?

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

How does the health of the Chinese Economy impact the Australian Dollar?

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

How does the price of Iron Ore impact the Australian Dollar?

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

How does the Trade Balance impact the Australian Dollar?

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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