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  • Australian Dollar continues its winning streak after the positive Services PMI on Thursday.
  • Australia’s ASX 200 extends losses on weak sentiment due to expectations of prolonged higher borrowing costs.
  • FOMC Minutes expressed caution regarding interest rate cuts could potentially delay the start of an easing cycle.
  • Investors await S&P US PMI data, weekly Initial Jobless Claims, and Existing Home Sales on Thursday.

The Australian Dollar (AUD) extends its winning streak on Thursday that began on February 14. This positive momentum was fueled by encouraging preliminary Australian Purchasing Managers Index (PMI) data. The data indicated a notable return to growth in private sector activity in February, marking the end of a five-month downturn, particularly driven by robust expansion in the services sector. However, the manufacturing sector encountered difficulties due to increased interest rates, leading to the most significant decline in output since May 2020.

Australian Dollar (AUD) could face hurdles stemming from softer Aussie money markets, as the S&P/ASX 200 Index registers its third consecutive decline amidst subdued sentiment. The recent release of the Federal Open Market Committee (FOMC) Minutes, expressing caution regarding interest rate cuts, might postpone the onset of an easing cycle. Additionally, the Reserve Bank of Australia’s (RBA) meeting minutes earlier this week shifted market sentiment towards the probability of no imminent rate cuts.

The US Dollar Index (DXY) encountered downward pressure despite the rise in US Treasury yields on Wednesday following the cautious tone expressed in the FOMC Minutes regarding the pace of interest rate reductions. The Meeting Minutes highlighted the necessity for further evidence of disinflation to alleviate concerns of upside risks. Presently, futures in funds indicate that approximately 70% of the market anticipates a rate cut by the Fed’s June meeting. According to the CME FedWatch Tool, there’s now a 52.2% probability assigned by the market for the initiation of easing to commence in June.

Daily Digest Market Movers: Australian Dollar strengthens on subdued US Dollar

  • Judo Bank Australia Composite PMI increased to 51.8 in February from the previous reading of 49, indicating the first month of expansion in the Australian private sector after a five-month period of contraction.
  • Judo Bank Australia Services PMI rose to 52.8 from the previous reading of 49.1. Manufacturing PMI fell to 47.7 from 50.1 prior due to a significant drop in new orders.
  • Australian Wage Price Index (QoQ) grew by 0.9% in the fourth quarter as expected, lower than the previous rise of 1.3%. The index rose by 4.2% year-over-year, surpassing the market expectation to be unchanged at 4.1%.
  • Westpac Leading Index (MoM) declined by 0.1% in January against the previous reading of flat 0.0%.
  • The ANZ-Roy Morgan Consumer Confidence improved to 82.8 this week from 82.6 prior. Remarkably, the index has now spent a record 55 consecutive weeks below the mark of 85.
  • RBA’s Meeting Minutes revealed that the Board deliberated on the possibility of raising rates by 25 basis points (bps) or keeping rates unchanged. While recent data indicated that inflation would return to target within a reasonable timeframe, it was acknowledged that this process would “take some time.” Consequently, the board agreed that it was prudent not to rule out another rate hike.
  • S&P’s analysis of the FOMC minutes suggests that inflation is expected to continue cooling in the upcoming months, despite the ongoing uneven disinflationary trends. They maintain their outlook for monetary policy in 2024, anticipating no changes. S&P predicts that the Federal Reserve will likely reduce its policy rate by 25 basis points at its June meeting, with further cuts totaling 75 basis points by the end of the year.
  • The Federal Reserve’s dot plot for this year indicates an expectation of 75 basis points in rate cuts, whereas the Fed funds futures market is pricing in approximately 89 basis points in cuts.
  • ANZ anticipates that the Federal Reserve (Fed) will commence rate cuts from July 2024.

Technical Analysis: Australian Dollar maintains its position above the major support of 0.6550

The Australian Dollar traded around the major level at 0.6560 on Thursday, which is positioned above the immediate support level of 0.6550. A break below this major level could retest the weekly low at 0.6521 followed by the psychological support level of 0.6500. On the upside, the AUD/USD pair could face a key resistance area around the 50-day Exponential Moving Average (EMA) at 0.6574 and the three-week high at 0.6579. A break above this region could lead the AUD/USD pair to approach the resistance zone around the psychological level of 0.6600 and 38.2% Fibonacci retracement level of 0.6606.

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 US Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   -0.06% -0.01% -0.08% 0.04% -0.02% -0.09% -0.04%
EUR 0.05%   0.04% -0.05% 0.09% 0.04% -0.03% 0.02%
GBP 0.01% -0.04%   -0.07% 0.06% -0.01% -0.06% -0.02%
CAD 0.07% 0.04% 0.08%   0.13% 0.07% 0.01% 0.06%
AUD -0.04% -0.08% -0.04% -0.13%   -0.04% -0.11% -0.07%
JPY 0.02% -0.03% -0.02% -0.07% 0.04%   -0.07% -0.02%
NZD 0.09% 0.04% 0.08% -0.01% 0.11% 0.07%   0.05%
CHF 0.02% -0.02% 0.02% -0.07% 0.05% 0.00% -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

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.

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.

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.

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.

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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