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Australian Dollar consolidates after intraday losses amid an improved US Dollar, PPI eyed

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  • Australian Dollar depreciates as the US Dollar attempts to hold ground after recent losses.
  • Australia employment data suggests that the RBA will avoid an interest rate hike in March.
  • S&P/ASX 200 index improves following the overnight surge in Wall Street on market optimism.
  • US Dollar holds ground over market sentiment suggesting that the Fed will postpone rate cuts in the upcoming meetings.

The Australian Dollar (AUD) attempts to halt its gains registered in the last two sessions as the US Dollar (USD) gains ground on improved Treasury yields. However, the AUD/USD pair received upward support after mixed economic data from the United States (US). Additionally, the S&P/ASX 200 index improves following the overnight surge in Wall Street. Investors remain optimistic ahead of US Producer Price Index (PPI) data and Michigan Consumer Sentiment Index due on Friday.

Australian economy has shown modest growth, influenced by ongoing challenges in the labor market and subdued inflationary pressures. Recent employment data suggests that the Reserve Bank of Australia (RBA) is unlikely to raise interest rates further in the March meeting. Market expectations now indicate that the RBA will maintain its current rates until August, with a 25 basis points (bps) rate cut anticipated in September, compared to earlier projections for November.

The US Dollar Index (DXY) remains stable, buoyed by market sentiment suggesting that the US Federal Reserve (Fed) will postpone interest rate cuts in the upcoming March and May meetings. According to the FedWatch Tool, investors are now pricing in a 25 bps rate cut in June, with a likelihood of 53%. The US Dollar encountered difficulties following disappointing US Retail Sales data. However, the impact on the advance of the AUD/USD pair may have been mitigated by the decrease in Initial Jobless Claims.

Daily Digest Market Movers: Australian Dollar depreciates amid a stable US Dollar

  • Australia’s seasonally adjusted Employment Change printed the reading of 0.5K for January, against the market expectation of 30K.
  • Aussie Part-Time Employment came in at 10.6K as compared to the previous figure of 46.7K.
  • Australian Participation Rate remained consistent at 66.8%, lower than the anticipated 66.9% in January.
  • January’s Full-Time Employment improved to 11.1K from the previous decline of 109.4K.
  • Australia’s Consumer Inflation Expectations data is unchanged at 4.5% for February.
  • Reserve Bank of Australia Governor Michele Bullock addressed the Australian parliament’s Senate Economics Legislation Committee, noting that the global economy has fared better than initially anticipated. She expressed previous concerns about potential hard landings and recessions but indicated that the economy is currently in a favorable position to bring inflation down within a reasonable timeframe.
  • Federal Reserve Bank of Atlanta President Raphael W. Bostic anticipates further advancements in inflation but it could be bumpy. He notes that if inflation retreats faster, it could prompt a reassessment of his stance on the outlook for interest rates.
  • US Retail Sales showed that consumer spending declined by 0.8% MoM in January. The market prediction was a decline of 0.1% against the previous increase of 0.4%.
  • US Retail Sales Control Group decreased by 0.4% in January, swinging from the previous increase of 0.6%.
  • US Initial Jobless Claims reported 212,000 unemployment claims for the week ending on February 9, against the market expectation of remaining consistent at 220,000.
  • US January’s Industrial Production (MoM) is contracted by 0.1% against the expected improvement of 0.3% from a flat 0.0% prior.

Technical Analysis: Australian Dollar hovers above the resistance level of 0.6500

The Australian Dollar trades near 0.6510 on Friday, positioned above the immediate support at the psychological level of 0.6500. A break below this level could push the AUD/USD pair to navigate the major support at 0.6450 before the weekly low at 0.6442. Conversely, the AUD/USD pair could find the key resistance region around the 14-day Exponential Moving Average (EMA) located at 0.6525. A breakthrough above the latter could lead the pair to target the 23.6% Fibonacci retracement level at 0.6543 and the major resistance level at 0.6550.

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 US Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.12% 0.14% 0.14% 0.17% 0.25% 0.25% 0.16%
EUR -0.14%   0.00% 0.01% 0.05% 0.13% 0.13% 0.04%
GBP -0.16% -0.03%   -0.01% 0.03% 0.10% 0.11% 0.01%
CAD -0.14% -0.02% 0.01%   0.04% 0.11% 0.10% 0.02%
AUD -0.17% -0.04% -0.01% -0.02%   0.09% 0.09% 0.01%
JPY -0.25% -0.13% -0.09% -0.13% -0.11%   0.01% -0.08%
NZD -0.25% -0.12% -0.10% -0.10% -0.07% 0.01%   -0.08%
CHF -0.17% -0.04% -0.01% -0.02% 0.01% 0.09% 0.08%  

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.

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