- Australian Dollar maintains bullish sentiment on dovish Fed outlook.
- Australia’s Manufacturing and Services PMI increased to 47.8 and 47.6, respectively.
- PBoC maintained its Medium-term Lending Facility rate (MLF) at 2.5%.
- China’s Industrial Production and Retail Sales improved to 6.6% and 10.1%, respectively, in November.
- US Retail Sales rose 0.3% and Initial Jobless Claims reduced to 202K.
The Australian Dollar (AUD) continues its winning streak for the third consecutive day on Friday. The AUD/USD pair receives upward support from improving Australia’s Purchasing Managers Index (PMI) data for December, released by Judo Bank and S&P Global. Additionally, China’s improved data contributes support to reinforcing the strength of the Australian Dollar.
Australia’s economy displays resilience, bolstered by robust employment results and expanding incomes. The preliminary Judo Bank Composite PMI has shown improvement, rising to 47.4 from the previous reading of 46.2. The Manufacturing PMI for the same period registered 47.8, a slight increase from the prior figure of 47.7. Additionally, the Services PMI grew to 47.6 compared to the previous reading of 46.0.
The People’s Bank of China (PBoC) kept its 1-year Medium-term Lending Facility (MLF) rate unchanged at 2.5%, the interest rate on MLF loans is a key factor influencing liquidity conditions in the banking system. Additionally, 650 billion Yuan worth of MLF loans are set to mature, and the central bank injects 1.45 trillion Yuan, a greater amount to bolster bank liquidity. These actions by the PBoC support the financial system and enhance economic conditions in China. Given Australia’s status as a major exporter to China, improvements in China’s economic conditions often translate to increased demand for Australian exports, contributing to the strength of the Aussie Dollar.
The National Bureau of Statistics of China revealed that Industrial Production (YoY) improved to 6.6% in November from 4.6% prior, exceeding the market expectation of 5.6%. However, China Retail Sales (YoY) rose to 10.1% from 7.6% prior, falling short of the market consensus of a 12.5% rise.
The US Dollar Index (DXY) attempts to rebound from a four-month low at 101.77 marked on Thursday. The DXY extends the negative momentum that followed the Federal Open Market Committee (FOMC) statement. Better-than-expected economic data from the United States (US) provided only modest support for the US Dollar (USD).
US Retail Sales (MoM) rose 0.3% in November, compared to the expected decline of 0.1%. Initial Jobless Claims for the week ending on December 8 came in at 202K against the 220K expected.
The dovish signals from the US Federal Reserve (Fed) have put pressure on the USD, especially as Treasury yields dropped to multi-month lows. The Fed’s cautious outlook on interest rates and the potential for a more accommodative monetary policy stance in 2024 contribute to the ongoing weakness in the Greenback.
Daily Digest Market Movers: Australian Dollar soars on dovish Fed’s outlook
- Australia’s Consumer Inflation Expectations for December eased at 4.5% against the previous figures of 4.9%.
- The seasonally adjusted Employment Change (Nov) improved substantially to 61.5K compared to the expected 11.0K. Unemployment Rate rose to 3.9% from 3.7% previously.
- ANZ-Roy Morgan Australian Consumer Confidence weekly survey rose to 80.8 from the previous week’s 76.4.
- Westpac Consumer Confidence for December showed improvement at 2.7% from the previous decline of 2.6%.
- Australian government anticipates a significantly improved budget bottom line this year as revenues outpace forecasts. In the mid-year economic and fiscal outlook (MYEFO) presented by Labor Treasurer Jim Chalmers, a budget deficit of just AUD 1.1 billion (USD 721.4 million) in the year to end June 2024 is projected, down from the AUD 13.9 billion forecast back in May.
- Federal Reserve (Fed) maintained interest rates at 5.5% in its December policy meeting as expected. Markets are now projecting three rate cuts for 2024.
- US Bureau of Labor Statistics revealed that the PPI (YoY) reduced to the growth of 0.9% against the expected growth of 1.0%, while the Core PPI came in at 2.0% against the 2.2% expected.
- US Bureau of Labor Statistics revealed that the US Consumer Price Index (CPI) for November rose by 0.1% month-on-month and 3.1% year-on-year. Both figures aligned with market consensus, indicating that inflation levels met expectations.
- US Core CPI, which excludes volatile food and energy prices, climbed by 0.3% MoM and 4.0% YoY, in line with expectations.
Technical Analysis: Australian Dollar edges above the 0.6700 psychological level
The Australian Dollar hovers around 0.6700 on Friday followed by its five-month high at 0.6728 recorded in the previous session. A bullish sentiment could drive the AUD/USD pair to surpass the recent high, followed by a significant barrier at 0.6750. On the downside, the key support at 0.6650 is of significance followed by the 23.6% Fibonacci retracement at 0.6619, before reaching the psychological support at 0.6600. A decisive breach below this support level might exert downward pressure on the AUD/USD pair to test the 21-day Exponential Moving Average (EMA) at 0.6588.
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 strongest against the New Zealand Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | 0.05% | 0.08% | -0.08% | 0.06% | -0.28% | 0.19% | -0.02% | |
| EUR | -0.07% | 0.00% | -0.16% | -0.03% | -0.33% | 0.07% | -0.08% | |
| GBP | -0.07% | -0.01% | -0.14% | -0.02% | -0.32% | 0.08% | -0.08% | |
| CAD | 0.07% | 0.15% | 0.14% | 0.09% | -0.16% | 0.23% | 0.07% | |
| AUD | -0.06% | 0.03% | 0.05% | -0.13% | -0.30% | 0.10% | -0.07% | |
| JPY | 0.29% | 0.33% | 0.33% | 0.18% | 0.28% | 0.36% | 0.24% | |
| NZD | -0.14% | -0.11% | -0.11% | -0.26% | -0.13% | -0.45% | -0.16% | |
| CHF | 0.02% | 0.08% | 0.08% | -0.07% | 0.08% | -0.25% | 0.15% |
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.
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