Australian Dollar extends gains on subdued US Dollar ahead of FOMC Minutes

  • Australian Dollar extends its gains on a subdued US Dollar.
  • Australia’s ASX 200 declines following overnight losses on Wall Street.
  • RBA Meeting Minutes shifted market sentiment towards the likelihood of no rate cuts anytime soon.
  • Greenback faces challenges as US Treasury yields decline ahead of FOMC Minutes.

The Australian Dollar (AUD) continues its winning streak for the sixth consecutive session on Wednesday. The AUD receives upward support following the release of the Reserve Bank of Australia’s (RBA) meeting minutes, which shifted market sentiment toward the likelihood of no rate cuts soon. Additionally, the decline in the US Dollar (USD) provides further upward support for the AUD/USD pair, possibly due to weaker US Treasury yields ahead of the Federal Open Market Committee (FOMC) Minutes scheduled for Wednesday.

Australian Dollar (AUD) may encounter challenges from weaker Aussie money markets as the S&P/ASX 200 Index declines for the second consecutive session, following overnight losses on Wall Street. This decline is attributed to subdued mining stocks and metals prices. Furthermore, the Australian Bureau of Statistics released mixed Wage Price Index data for the fourth quarter, which does not appear to be influencing the Aussie Dollar (AUD) significantly.

The US Dollar Index (DXY) faces downward pressure as market expectations lean towards no further rate hikes by the Federal Reserve in upcoming meetings. According to the CME FedWatch Tool, the likelihood of a Fed cut has notably decreased to 8.5% and 30.7% for March and May, respectively. The market is now projecting the start of easing to begin in June, with a probability of 54.3%.

Daily Digest Market Movers: Australian Dollar appreciates on weaker US Dollar

  • 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.
  • The People’s Bank of China (PBoC) implemented an unprecedented reduction in the five-year Loan Prime Rate (LPR) by 25 basis points, marking the largest decrease on record, from 4.20% to 3.95%. This move was aimed at bolstering the housing market. However, analysts suggest that the overall impact on stimulating the economy may be marginal.
  • 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.
  • 3-Month and 6-Month US Bills auctioned at 5.23% and 5.1%, respectively.

Technical Analysis: Australian Dollar hovers around the major level of 0.6550

The Australian Dollar traded around the major level at 0.6550 on Wednesday. A break below this major level could meet the immediate support around the 14-day Exponential Moving Average (EMA) at 0.6535 followed by the psychological support level of 0.6500. On the upside, the AUD/USD pair could retest the three-week high at 0.6579 followed by 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 Japanese Yen.

USD   0.02% -0.02% -0.07% -0.21% 0.09% -0.40% -0.06%
EUR -0.01%   -0.03% -0.08% -0.22% 0.07% -0.41% -0.07%
GBP 0.01% 0.03%   -0.05% -0.20% 0.11% -0.38% -0.03%
CAD 0.07% 0.08% 0.05%   -0.16% 0.15% -0.33% 0.02%
AUD 0.22% 0.22% 0.20% 0.14%   0.30% -0.19% 0.16%
JPY -0.09% -0.08% -0.11% -0.16% -0.28%   -0.49% -0.12%
NZD 0.40% 0.42% 0.38% 0.33% 0.18% 0.50%   0.35%
CHF 0.05% 0.06% 0.04% -0.01% -0.15% 0.14% -0.34%  

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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