Australian Dollar depreciates despite improved Consumer Confidence, US Dollar remains calm

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  • Australian Dollar loses ground amid a stable US Dollar.
  • Australia Consumer Confidence jumped 6.2% to 86 in February.
  • The US Dollar holds ground despite subdued US Treasury yields.
  • US CPI YoY and MoM could moderate to 3.0% and 0.2%, respectively, in January.

The Australian Dollar (AUD) retreats after posting gains in the previous two sessions, despite the release of improved Australia Consumer Confidence data on Tuesday. The Westpac-Melbourne Institute Consumer Sentiment index surged 6.2% to 86 in February from 81 in January, marking its highest reading in 20 months. However, the index remained below the neutral 100 mark since February 2022.

Australian Dollar faces downward pressure as Australian inflation moderates, leading to the market sentiment that the Reserve Bank of Australia (RBA) has completed its monetary tightening cycle. This downward trend in the Aussie Dollar weighs on the AUD/USD pair. Additionally, the Australian money market’s decline may further constrain the AUD’s performance.

The US Dollar Index (DXY) holds steady after recent gains, with the decline in US Treasury yields capping the strength of the US Dollar (USD). Market sentiment is mixed, as traders exercise caution ahead of the release of important US inflation data scheduled for Tuesday, which could influence expectations regarding interest rates.

Daily Digest Market Movers: Australian Dollar declines amid a stable US Dollar

  • National Australia Bank’s Business Confidence improved to the reading of 1 in January from the previous flat 0.
  • National Australia Bank’s Business Conditions decreased to 6 in January from 8 prior.
  • 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.
  • The Commonwealth Bank of Australia (CBA) forecasted a reduction of 75 basis points in the benchmark interest rate for 2024, with the initial cut anticipated in September.
  • China’s headline CPI declined by 0.8%, exceeding the anticipated decline of 0.5% and the previous decline of 0.3%.
  • Dallas Federal Reserve (Fed) Bank President Lorie Logan remarked on Friday that there is currently no pressing need to lower interest rates. She acknowledged “tremendous progress” in curbing inflation but emphasized the necessity for additional evidence to ensure the sustainability of this progress.
  • US Monthly Budget Statement came in with the reading of $-22B in January, against the expected reading of $-21B and $-129B prior.
  • 3-Month and 6-Month US Bill was auctioned at the rate of 5.23% and 5.065%, respectively.

Technical Analysis: Australian Dollar trades near 0.6530 before the 14-day EMA

The Australian Dollar hovers near 0.6530 on Tuesday, situated below the immediate resistance of the 14-day Exponential Moving Average (EMA) at 0.6544 aligned with the major barrier at 0.6550 level. A breakthrough above this major level could potentially prompt the AUD/USD pair to target key levels such as the 23.6% Fibonacci retracement level at 0.6563 and the psychological resistance at 0.6600. On the downside, the psychological level of 0.6500 could act as the immediate support. A break below the latter could push the AUD/USD pair to revisit the previous week’s low at 0.6468 followed by the major support level of 0.6450.

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 weakest against the Japanese Yen.

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

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.