AUD/USD holds losses near 0.7100 as Westpac Consumer Confidence falls in February
- AUD/USD stays under pressure as the Australian Dollar weakens on mixed data and worsening market sentiment.
- Westpac Consumer Confidence fell 2.6% MoM to a 10-month low after the first rate hike in over two years.
- Investors await delayed January US jobs data and CPI to gauge economic cooling and the timing of potential Fed easing.
AUD/USD remains subdued after two days of gains, trading around 0.7090 during the Asian hours on Tuesday. The pair remains under pressure as the Australian Dollar (AUD) weakens amid deteriorating market sentiment following mixed domestic data.
Westpac Consumer Confidence fell 2.6% month-on-month (MoM) to a 10-month low of 90.5 in February, weighed by a 25 basis-point rate hike, the first in over two years. Meanwhile, NAB’s Business Confidence Index edged up to 3 in January from a downwardly revised 2, marking its highest level since October.
Investors are awaiting the delayed January US employment report and upcoming CPI data, which are expected to shape views on economic cooling and the timing of potential Federal Reserve easing.
Sentiment has improved ahead of a heavy slate of US data due this week, helping assess economic health and refine expectations for the Fed’s policy path. Markets anticipate the Fed will hold rates in March, with a first cut likely in June and a possible follow-up in September.
US inflation expectations eased, with median one-year-ahead inflation expectations falling to 3.1% in January, the lowest in six months, from 3.4% in December. Food price expectations were unchanged at 5.7%, while three- and five-year expectations remained steady at 3%.
US Treasury Secretary Scott Bessent on Thursday declined to rule out the possibility of a criminal investigation into Kevin Warsh, President Donald Trump’s nominee for US Federal Reserve (Fed) chair, should Warsh refuse to cut interest rates.
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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