Australian Dollar trims daily gains on lower ASX 200, stable US Dollar

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  • Australian Dollar loses ground as the S&P/ASX 200 Index moves lower.
  • Australian Securities Inflation (YoY) rose by 4.0% in February, against the previous increase of 4.6%.
  • US Dollar maintains stability on improved US Treasury yields.
  • US ISM Manufacturing PMI (Feb) dropped to 47.8 from 49.1, against the anticipated increase to 49.5.

The Australian Dollar (AUD) trims its intraday gains and moves in the negative direction on Monday, influenced by a stable US Dollar amid improved US Treasury yields. Additionally, the decline of the ASX 200 index provided further downward pressure on the Aussie Dollar, thereby undermining the AUD/USD pair. Traders are likely awaiting key Australian data releases, including the Services Purchasing Managers Index (PMI) for February on Tuesday and the Gross Domestic Product (GDP) for the fourth quarter of 2023 on Wednesday.

Australian Dollar has received some support from the Australia Melbourne Institute Inflation for February, which showed a year-over-year rise of 4.0%. However, this increase was lower than the previous rise of 4.6%. Building Permits (MoM) declined by 1.0% in January, contrary to the expected rise of 4.0%. Nevertheless, this figure represented an improvement from the previous decrease of 10.1%. Furthermore, last week's Consumer Price Index (CPI) data indicated a 3.4% rise in January, slightly below the market consensus of 3.5%. This data supported the case for the Reserve Bank of Australia (RBA) to consider cutting interest rates later this year.

The US Dollar Index (DXY) could be driven lower due to a contraction in the United States manufacturing sector observed in February. Despite this contraction, Federal Reserve (Fed) officials have maintained a cautious stance and have not signaled any immediate interest rate cuts, which provides some support for the US Dollar. Investors closely monitor upcoming economic data releases, including the ISM Services PMI data, ADP Employment Change, and Nonfarm Payrolls for February.

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

  • Australia’s TD Securities Inflation (MoM) decreased by 0.1% in February, lower than the previous rise of 0.3%.
  • Australian Bureau of Statistics released Company Gross Operating Profits (QoQ), rising by 7.4% in the fourth quarter of 2023 against the expected 1.8% increase and the previous decrease of 1.6%.
  • Australian Building Permits (YoY) rose by 10% in January, swinging from the previous decline of 24%.
  • Judo Bank Manufacturing PMI indicated a slight improvement in Australia's manufacturing sector, with the February reading rising to 47.8 from 47.7 in the previous period.
  • The seasonally adjusted Australian Retail Sales (MoM) grew by 1.1% in January, lower than expected 1.5% but swinging from the previous decline of 2.7%.
  • Australian Private Capital Expenditure improved by 0.8% in the fourth quarter of 2023, from the expected 0.5% and 0.6% prior.
  • Warren Hogan, Chief Economist Advisor at Judo Bank, expressed concerns about Australia's manufacturing sector, stating that it is not experiencing growth. This observation calls into question the notion of a post-pandemic manufacturing revival.
  • Atlanta Fed President Raphael W. Bostic has expressed his expectation that the first cut in interest rates would likely be appropriate, possibly occurring towards the end of this year at the earliest.
  • Economists at Commerzbank suggest that the looming shutdown in the United States has little influence on the US Dollar thus far. They speculate that perhaps the market is becoming indifferent or desensitized to the prospect of shutdowns, leading to a lack of significant reaction.
  • According to the CME FedWatch Tool, the probability of rate cuts in March stands at 5.0%, while the likelihood of cuts in May and June is estimated at 26.8% and 53.8%, respectively.
  • US ISM Manufacturing PMI (Feb) dropped to 47.8 from 49.1, surprisingly missing the market expectation 49.5.
  • The US Michigan Consumer Sentiment Index declined to 76.9 in February, falling below the market expectation of remaining unchanged at 79.6.
  • US Personal Consumption Expenditure (PCE) Price Index grew by 2.4% YoY in January, against the 2.6% prior, in line with the market expectation. The index increased by 0.3% month-over-month, against 0.1% prior.
  • US Core PCE (YoY), the Fed preferred inflation gauge, rose by 2.8% compared to December’s reading of 2.9, matching with the consensus. The monthly figure showed a rise of 0.4% as expected, above the previous rise of 0.1%.
  • The preliminary US Gross Domestic Product Annualized grew by 3.2% in the fourth quarter of 2023, slightly below market expectations of remaining steady at 3.3%.
  • The preliminary US Gross Domestic Product Price Index (Q4) increased by 1.7% against the expected and previous rise of 1.5%.

Technical Analysis: Australian Dollar declines to 0.6520 before the psychological support

The Australian Dollar hovers around 0.6520 on Monday. The immediate resistance is observed around the 21-day Exponential Moving Average (EMA) at 0.6537, followed by the 23.6% Fibonacci retracement level at 0.6543 and the major level of 0.6550. If the pair breaks above this resistance zone, it may approach the psychological level of 0.6600. On the downside, the psychological level of 0.6500 appears as the key support followed by the previous week’s low at 0.6486. A breach below this level could potentially trigger a downward move in the AUD/USD pair, targeting the area around the major support level of 0.6450 and February’s low at 0.6442.

AUD/USD: Daily Chart

Australian Dollar trims daily gains on lower ASX 200, stable US Dollar

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 US Dollar.

USD 0.02% 0.02% 0.09% 0.10% 0.03% 0.14% 0.03%
EUR -0.03% -0.01% 0.06% 0.07% 0.01% 0.10% 0.01%
GBP -0.02% 0.02% 0.06% 0.08% 0.03% 0.11% 0.02%
CAD -0.09% -0.04% -0.05% 0.03% -0.05% 0.05% -0.05%
AUD -0.10% -0.07% -0.08% -0.02% -0.06% 0.04% -0.06%
JPY -0.03% -0.01% -0.06% 0.03% 0.05% 0.09% 0.00%
NZD -0.14% -0.10% -0.12% -0.05% -0.04% -0.10% -0.10%
CHF -0.04% -0.01% -0.02% 0.05% 0.06% 0.00% 0.10%

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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