Australian Dollar seems to extend gains despite an improved US Dollar, US Core PCE eyed

Australian Dollar could gain ground on bullish momentum.
Australia's Dollar cheered the improved prices of copper and iron.
US Dollar could extend its gains following the firmer-than-expected US GDP figures.
US GDP Annualized (Q4) came in at 3.3% above the market consensus of 2.0%.

The Australian Dollar (AUD) strives to build on its recent gains for the second consecutive session on Friday. The bullish momentum seems to be resurfacing, supporting a notable upward movement in the AUD/USD pair. Interestingly, the Australian Dollar strengthens even in the face of an improved US Dollar (USD), despite the backdrop of lower US Treasury yields. However, the volatility is expected to subside as financial markets are closed in observance of the Australia Day Holiday.

Australia's Dollar reacted positively to the favorable performance of copper and iron. Additionally, the AUD might have received some support from the recent news mentioning additional stimulus measures by the People's Bank of China (PBoC). However, the Reserve Bank of Australia (RBA) is still expected to reduce borrowing costs later this year. Changes to the stage three tax cut package might introduce a slight delay in the timeline for the first rate cut, potentially pushing it back by a couple of months.

The Reserve Bank of Australia's (RBA) Bulletin suggests that businesses, over the last six months, have generally foreseen a slowdown in their price growth. The prevailing expectation is that, on average, prices will remain above the RBA's inflation target range of 2.0–3.0%.

The US Dollar Index (DXY) could attempt to capitalize on recent gains following the firmer-than-expected US GDP figures, which further reinforced the already resilient stance of the United States (US) economy. The US Gross Domestic Product Annualized (Q4) reported a reading of 3.3% against the previous reading of 4.9%, exceeding the market consensus of 2.0%.

US Treasury Secretary Janet Louise Yellen has remarked that the robust performance of the US economy in the fourth quarter is viewed as a positive development and is not likely to pose challenges in terms of inflation. Yellen attributes the strong Q4 GDP data to vigorous and healthy spending, coupled with productivity improvements. She further emphasizes that there is nothing in the GDP report that suggests a threat to the prospect of a 'soft landing' scenario for the US economy.

Traders are poised to closely monitor the upcoming Personal Consumption Expenditures (PCE) Price Index data on Friday. Following the release of the GDP report, the US Bureau of Economic Analysis is set to publish the PCE Price Index data, providing insights into the monthly changes in both Personal Spending and Personal Income.

Daily Digest Market Movers: Australian Dollar seems to gain ground amid a stable US Dollar

Australia's Manufacturing PMI increased from 47.6 to 50.3, showcasing improvement. Services PMI also saw an uptick, rising from 47.1 to 47.9. The Composite PMI registered an increase, reaching 48.1 compared to December's 46.9.
Australia’s Westpac Leading Index (MoM) declined by 0.03% in December against November’s growth of 0.07%.
National Australia Bank's Business Conditions inched down to the reading of 7 in December from 9 prior.
National Australia Bank's Business Confidence improves to -1 from the previous figure of -9.
Australia’s Consumer Inflation Expectations remained steady at 4.5% in January.
The Chair of Australia's sovereign wealth fund Peter Costello commented that inflation in Australia is showing early signs of moderation. However, Costello emphasizes that there is still a considerable distance to cover to bring prices back within the RBA's target band.
Chinese financial media reported that the People's Bank of China (PBoC) may cut the Medium-term Lending Facility (MLF) rate in the current quarter. The announcement follows the recent statement by PBoC Governor Pan Gongsheng, who revealed that the Bank would reduce the Required Reserve Ratio (RRR) by 50 basis points starting from February 5th.
US S&P Global Manufacturing PMI climbed to an 11-month high of 50.3 in January against the forecast of remaining consistent at 47.9.
US Services PMI rose to 52.9 against the expected reading of 51 and 51.4 prior. While Composite PMI increased to 52.3 from the previous reading of 50.9.
US Conference Board has reported a slight improvement in the Leading Economic Index for December, moving from -0.5% in November to -0.1% in December. This surpassed expectations for an improvement to -0.3%.
The preliminary US Michigan Consumer Sentiment Index rose to 78.8 in January from 69.7 prior, exceeding the expected figure of 70.

Technical Analysis: Australian Dollar remains below the psychological level at 0.6600

The Australian Dollar trades around 0.6590 on Friday, encountering immediate resistance at the psychological level of 0.6600. This level aligns with the 23.6% Fibonacci retracement at 0.6606, followed by the 14-day Exponential Moving Average (EMA) at 0.6615. A decisive breakthrough above this resistance zone might propel the AUD/USD pair toward the major barrier at 0.6650. Conversely, on the downside, there's a possibility of revisiting the weekly low at 0.6551, coinciding with the significant level at 0.6550. If this support is breached, the pair could face additional downward pressure, potentially retesting the monthly low at 0.6524.

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		0.03%	0.00%	-0.03%	-0.05%	-0.10%	0.03%	-0.01%
EUR	-0.03%		-0.03%	-0.06%	-0.09%	-0.11%	0.00%	-0.04%
GBP	-0.01%	0.03%		-0.04%	-0.06%	-0.08%	0.04%	-0.01%
CAD	0.03%	0.06%	0.03%		-0.03%	-0.06%	0.06%	0.02%
AUD	0.06%	0.09%	0.06%	0.03%		-0.02%	0.09%	0.05%
JPY	0.08%	0.10%	0.09%	0.05%	-0.01%		0.12%	0.08%
NZD	-0.02%	0.00%	-0.03%	-0.06%	-0.09%	-0.12%		-0.04%
CHF	0.01%	0.04%	0.01%	-0.02%	-0.05%	-0.08%	0.05%

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.