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  • Australian Dollar lost ground as the US Dollar rose on upbeat US CPI numbers.
  • Australian ASX 200 Index falls; puts pressure on the AUD.
  • US Dollar strengthened on upbeat US Treasury yields.
  • Robust US CPI numbers dashed the chances of a Fed rate cut in March.

The Australian Dollar (AUD) makes an effort to retrace its recent losses recorded in the previous session. The decline in the AUD/USD pair was driven by robust US inflation data for January, which dashed hopes of an imminent rate cut by the Federal Reserve (Fed) in March.

Australian Dollar received downward pressure as the S&P/ASX 200 Index tumbled to its lowest levels in three weeks, driven by a selloff in mining and financial stocks following Wall Street’s decline overnight in response to stronger-than-expected US inflation figures.

The US Dollar Index (DXY) remains steady near three-month highs, supported by recent gains, while US yields trade at multi-week highs across the yield curve. Market sentiment has shifted dramatically, with expectations for an unchanged rate next month soaring to 93%, a stark contrast to a month earlier. Investors are now pricing in the possibility of a rate cut by the Fed in June.

Daily Digest Market Movers: Australian Dollar gains ground amid a stable US Dollar

  • Stephen Kennedy, the Head of Australia’s Treasury, addressed a parliamentary committee, noting that services inflation is trailing behind goods inflation. He mentioned that services inflation has likely peaked and is expected to decline over the next two years, and he sees no evidence of a wage-price spiral.
  • Reserve Bank of Australia (RBA) Governor Michele Bullock stated that the central bank might consider initiating rate cuts even before inflation decelerates to 2.5%. However, she cautioned that the RBA remains receptive to the prospect of further rate hikes.
  • RBA’s Head of Economic Analysis, Marion Kohler, emphasized uncertainty regarding current inflation projections for the Australian economy. However, she anticipates that price growth will eventually return to a more moderate level by 2025.
  • China’s headline CPI declined by 0.8%, exceeding the anticipated decline of 0.5% and the previous decline of 0.3%.
  • US headline Consumer Price Index (CPI) increased by 3.1% in January, exceeding the expected 2.9% but lower than the previous rate of 3.4%.
  • US Inflation rose by 0.3% month-over-month, against the expectation of maintaining the previous reading of 0.2%.
  • US Core CPI (YoY) remained consistent at 3.9% against the market expectation of a decline to 3.7% in January.
  • US Core Inflation (MoM) increased by 0.4% against the 0.3% as expected to be unchanged in January.

Technical Analysis: Australian Dollar hovers above the major level of 0.6450

The Australian Dollar traded near 0.6450 on Wednesday following the next psychological support level of 0.6400. A break below the latter could push the AUD/USD pair to approach the major support level at 0.6350. On the upside, the key resistance appears at the psychological level of 0.6500. A breakthrough above this psychological barrier could influence the AUD/USD pair to reach the 14-day Exponential Moving Average (EMA) at 0.6523 followed by the 23.6% Fibonacci retracement level at 0.6543 and the major level at 0.6550.

AUD/USD: Daily Chart

Australian Dollar price this week

The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies this week. Australian Dollar was the weakest against the US Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.79% 0.28% 0.75% 0.93% 0.90% 1.19% 1.34%
EUR -0.80%   -0.51% -0.04% 0.15% 0.10% 0.40% 0.58%
GBP -0.29% 0.51%   0.47% 0.66% 0.61% 0.91% 1.06%
CAD -0.75% 0.04% -0.47%   0.19% 0.15% 0.44% 0.60%
AUD -0.95% -0.16% -0.67% -0.20%   -0.05% 0.25% 0.40%
JPY -0.90% -0.11% -0.58% -0.15% 0.05%   0.30% 0.45%
NZD -1.21% -0.40% -0.92% -0.44% -0.25% -0.29%   0.15%
CHF -1.38% -0.58% -1.08% -0.61% -0.42% -0.48% -0.17%  

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).

Employment FAQs

Labor market conditions are a key element to assess the health of an economy and thus a key driver for currency valuation. High employment, or low unemployment, has positive implications for consumer spending and thus economic growth, boosting the value of the local currency. Moreover, a very tight labor market – a situation in which there is a shortage of workers to fill open positions – can also have implications on inflation levels and thus monetary policy as low labor supply and high demand leads to higher wages.

The pace at which salaries are growing in an economy is key for policymakers. High wage growth means that households have more money to spend, usually leading to price increases in consumer goods. In contrast to more volatile sources of inflation such as energy prices, wage growth is seen as a key component of underlying and persisting inflation as salary increases are unlikely to be undone. Central banks around the world pay close attention to wage growth data when deciding on monetary policy.

The weight that each central bank assigns to labor market conditions depends on its objectives. Some central banks explicitly have mandates related to the labor market beyond controlling inflation levels. The US Federal Reserve (Fed), for example, has the dual mandate of promoting maximum employment and stable prices. Meanwhile, the European Central Bank’s (ECB) sole mandate is to keep inflation under control. Still, and despite whatever mandates they have, labor market conditions are an important factor for policymakers given its significance as a gauge of the health of the economy and their direct relationship to inflation.

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