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- Australian Dollar trades near a five month high, PBoC keeps interest rate unchanged
Australian Dollar trades near a five month high, PBoC keeps interest rate unchanged
- Australian Dollar gained ground on hawkish RBA Meeting Minutes.
- Australian central bank is expected to keep its interest rate unchanged in February's meeting.
- PBoC kept its benchmark interest rate unchanged at 3.45% in December's meeting.
- US Dollar lost ground on speculation of the Fed considering rate cuts in early 2024.
The Australian Dollar (AUD) trades below its five-month high at 0.6774 on Wednesday on subdued US Dollar (USD) and improved risk appetite. The AUD/USD pair received upward support from the hawkish stance revealed by the Meeting Minutes from the Reserve Bank of Australia (RBA) on Tuesday. Additionally, the upbeat commodity prices contributed support to the Australian Dollar.
Australia's central bank emphasized the significance of waiting for additional data to assess the balance of risks. This consideration takes into account the potential for inflation to persist at elevated levels for an extended period. Additionally, the board noted that the RBA staff forecast anticipated inflation returning to the upper end of the band by the end of 2025 rather than the midpoint.
The Reserve Bank of Australia is widely anticipated to avoid a rate cut in February's policy meeting, according to the World Interest Rate Probability Tool (WIRP). However, there is a higher probability of the central bank easing monetary tightening in the meetings scheduled for May and June.
The People’s Bank of China (PBoC) released its Interest Rate Decision on Wednesday. The Monetary Policy Committee (MPC) kept the benchmark rate unchanged at 3.45%.
The US Dollar Index (DXY) experienced a decline in the previous session, struggling to recover the recent losses amidst subdued US Treasury yields. The US Dollar encounters challenges due to the dovish sentiment surrounding the US Federal Reserve (Fed), hinting at potential monetary policy easing in early 2024.
US Housing Starts rose to 1.56M, surpassing the market consensus of 1.36M. However, Building Permits declined to 1.46M, slightly below the forecast of 1.47M. Existing Home Sales Change and the CB Consumer Confidence survey will be eyed on Wednesday.
Daily Digest Market Movers: Australian Dollar gains ground on improved risk appetite
- Westpac Leading Index (MoM) for November improved by 0.01% against the previous reading of flat 0.0%.
- The preliminary Judo Bank Composite PMI improved to 47.4 from the previous reading 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.
- Australia’s Consumer Inflation Expectations for December eased at 4.5% against the previous figures of 4.9%.
- Australian Trade Minister Don Farrell stated that he believes China will eliminate punitive tariffs on Australian wine. China has already lifted trade restrictions on most Australian exports, signaling a gradual improvement in the relations between the two countries.
- New York Fed President John Williams offered a counterpoint in contrast to speculation about a March rate cut from the Federal Open Market Committee (FOMC). Furthermore, San Francisco Fed President Mary Daly stated that speculating on the policy stance for the upcoming year is premature.
- US S&P Global Services PMI rose to 51.3 from 50.8 prior. While Manufacturing PMI declined to 48.2 from 49.4.
Technical Analysis: Australian Dollar hovers around 0.6750 major level
The Australian Dollar trades around 0.6750 on Wednesday, below its recent five-month high of 0.6774 reached on Tuesday. The prevailing bullish sentiment suggests the potential for the AUD/USD pair to revisit the recent peak and target the key resistance at the psychological level of 0.6800. On the downside, support may be found at the seven-day Exponential Moving Average (EMA) at 0.6701, in alignment with the psychological level at 0.6700. A breach below this key support region could lead the AUD/USD pair towards the 23.6% Fibonacci retracement at 0.6656 before reaching the critical zone at 0.6650.
AUD/USD: Daily Chart
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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 | 0.10% | 0.09% | 0.08% | 0.12% | 0.03% | 0.11% | 0.07% | |
| EUR | -0.10% | 0.00% | -0.03% | -0.04% | -0.08% | 0.00% | -0.04% | |
| GBP | -0.09% | 0.01% | -0.01% | 0.03% | -0.06% | 0.02% | -0.03% | |
| CAD | -0.07% | 0.03% | 0.01% | -0.02% | -0.06% | 0.03% | -0.03% | |
| AUD | -0.08% | 0.02% | 0.02% | -0.01% | -0.06% | 0.06% | -0.01% | |
| JPY | 0.00% | 0.12% | 0.09% | 0.07% | 0.11% | 0.11% | 0.04% | |
| NZD | -0.11% | -0.01% | -0.01% | -0.03% | 0.01% | -0.08% | -0.05% | |
| CHF | -0.03% | 0.04% | 0.03% | 0.02% | 0.01% | -0.04% | 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.
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