Australian Dollar moves back and forth amid firmer US Dollar, ISM Services PMI eyed

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  • Australian Dollar faced challenges due to the lower ASX 200 Index on Wednesday.
  • Australian Industry Group Industry Index improved to a reading of -5.3 from -14.9 prior.
  • China’s Services PMI improved to 52.7 in March, compared with the previous reading of 52.5.
  • US Dollar receives downward pressure following dovish remarks from Fed officials.

The Australian Dollar (AUD) attempts to extend gains for the second consecutive session on Wednesday. However, the US Dollar (USD) experienced depreciation due to downward pressure on US Treasury yields, consequently providing support to the AUD/USD pair. Additionally, the decline in the ASX 200 Index contributes to pressure on the AUD.

The Australian Industry Group (AiG) Industry Index showed improvement in February, rising to a reading of -5.3 from the previous -14.9. Similarly, the Manufacturing PMI came in at -7, compared to the prior reading of -12.6. According to Westpac’s summary of the Reserve Bank of Australia (RBA) March meeting minutes, the current cash rate level is considered suitable for the present circumstances, although conditions may change in the future.

The US Dollar Index (DXY) encounters obstacles following dovish remarks from Federal Reserve (Fed) officials. Cleveland Fed President Loretta Mester indicated on Tuesday her anticipation of rate cuts later this year. Concurrently, San Francisco Fed President Mary Daly expressed her view that three rate cuts in 2024 appear “reasonable,” contingent upon further convincing evidence to solidify such a decision.

Daily Digest Market Movers: Australian Dollar depreciates on weaker ASX 200

  • AiG Construction PMI posted a reading of -12.9 in February, against the previous -18.4 reading.
  • Australia’s TD Securities Inflation (YoY) came in at 3.8% in March, against the previous increase of 4.0%.
  • Melbourne Institute’s Monthly Inflation Gauge increased by 0.1% in March, following a decrease of 0.1% in the previous month.
  • ANZ Job Advertisements declined by 1.0% in March, compared to the previous decline of 2.1%.
  • RBA March minutes showed that the board did not contemplate the option of raising interest rates. They unanimously agreed that it was challenging to definitively predict future changes in the cash rate. While the economic outlook remained uncertain, the risks appeared to be generally balanced. The board acknowledged that it would require “some time” before they could express confidence in inflation returning to the target level.
  • On Monday, China’s Caixin Manufacturing PMI came in at 51.1, against the expected 51.0 and 50.9 prior.
  • China’s National Bureau of Statistics (NBS) announced on Sunday that the monthly NBS Manufacturing PMI rose to 50.8 in March from 49.1 in the prior month. Additionally, the NBS Non-Manufacturing PMI increased to 53.0 in March from 51.4 in February.
  • US President Joe Biden engaged in a phone conversation with Chinese leader Xi Jinping sometime after November. During the call, the two leaders had an open and constructive dialogue covering various bilateral, regional, and global topics, addressing both areas of collaboration and points of divergence.
  • Treasury Secretary Janet Yellen is set to visit China this week, where she will hold meetings with China’s Finance Minister, as well as engage with economists, students, and members of the business community.
  • US ISM Manufacturing PMI indicated a surprise expansion in March, as the index climbed to 50.3 in March from February’s 47.8, surpassing expectations of 48.4. This reading marked the highest level observed since September 2022.
  • US ISM Manufacturing Prices Paid increased to 55.8 in March, compared to the expected 52.6 and 52.5 prior.

Technical Analysis: Australian holds position above psychological level of 0.6500

The Australian Dollar hovers around 0.6510 on Wednesday. Immediate support is seen around the psychological level of 0.6500. A breach beneath this mark may lead the AUD/USD pair towards the vicinity of March’s low at 0.6477 and the significant level of 0.6450. Conversely, key resistance is noted at the 23.6% Fibonacci retracement level of 0.6525, followed by the 14-day Exponential Moving Average (EMA) at 0.6530. Additional resistance is situated at the major level of 0.6550.

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 New Zealand Dollar.

USD   -0.05% 0.01% 0.07% -0.02% 0.04% -0.07% 0.09%
EUR 0.05%   0.06% 0.12% 0.04% 0.09% -0.02% 0.13%
GBP -0.01% -0.06%   0.07% -0.05% 0.03% -0.08% 0.09%
CAD -0.07% -0.12% -0.07%   -0.12% -0.04% -0.14% 0.02%
AUD 0.02% -0.01% 0.03% 0.09%   0.06% -0.04% 0.10%
JPY -0.04% -0.09% -0.05% 0.03% -0.05%   -0.12% 0.04%
NZD 0.06% 0.01% 0.07% 0.13% 0.02% 0.10%   0.13%
CHF -0.07% -0.13% -0.07% 0.00% -0.09% -0.04% -0.14%  

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 in assessing 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 lead 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 their significance as a gauge of the health of the economy and their direct relationship to inflation.