US Dollar softens after mid-tier economic data
- Durable Goods Orders remained almost flat in August.
- US GDP grew at an annual rate of 3.0% in the second quarter of 2024.
- Initial Jobless Claims in the US fell to 218K in the week ending September 21.
The US Dollar Index (DXY), which measures the value of the USD against a basket of six currencies, is flat after a muted market reaction to a slew of robust US economic data. The DXY is trading at 100.88 at the time of writing.
Economic data this week showed evidence of resilience in the US economy. To add to that, the Fed has already stated that its response will depend on the interplay between these contrasting signals, balancing the need to address potential risks while ensuring the ongoing health of the economy.
Daily digest market movers: US Dollar sees losses after data points, Fed speakers
- New Orders for US manufactured durable goods remained virtually unchanged in August, rising by a marginal $0.1 billion to $289.7 billion, marking the sixth increase in the last seven months.
- Excluding transportation, New Orders increased by 0.5%, driven by a 1.9% rise in electrical equipment, appliances, and components. Excluding defense, new orders declined by 0.2%.
- Gross Domestic Product (GDP) in the US grew at an annual rate of 3.0% in the second quarter of 2024, in line with the initial estimate.
- Initial Jobless Claims in the US fell to 218K in the week ending September 21, below both the consensus estimate of 225K and the previous week's revised figure of 222K.
- The data supports the notion that the economy holds steady with no need of aggressive easing.
- In the meantime, Fed speakers are trying to push more dovish rhetoric.
- Atlanta Fed President Raphael Bostic highlighted that a 50-basis-point cut puts the central bank in a stronger position to handle economic uncertainties.
- Similarly, Minneapolis Fed President Neel Kashkari pointed out that a larger cut provides the Fed with more aggressive tools if inflation continues to ease.
- Chicago Fed President Austan Goolsbee echoed this sentiment, noting that a significant cut now gives the Fed greater room to adjust if economic conditions worsen.
- Fed Governor Michele Bowman dissented, favoring a more cautious 25-basis-point reduction, reflecting concerns about moving too aggressively.
DXY technical outlook: DXY momentum reverses with continued bearish dominance
Technical analysis of the DXY index reveals that the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) indicators suggest bearish momentum, with the RSI remaining in negative territory and the MACD printing flat green bars. This indicates weak buying pressure and suggests a continuation of bearish dominance.
Additionally, the strong resistance level at 101.00 limits the upside potential for the US Dollar. Key support levels include 100.50, 100.30 and 100.00, while resistance levels are located at 101.00, 101.30 and 101.60.
Australian Dollar FAQs
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.
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.
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.
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.
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.
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