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HomeUncategorizedAustralian Dollar retraces its gains on improved US Dollar, Aussie Retail Sales...

Australian Dollar retraces its gains on improved US Dollar, Aussie Retail Sales eyed

  • Australian Dollar loses ground as the US Dollar continues to gain ground.
  • Australian Retail Sales data is anticipated to increase by 1.2% against the previous decline of 0.2%.
  • Chinese wealth manager Zhongzhi has filed for bankruptcy liquidation.
  • US Nonfarm Payrolls rose to 216K from the previous figure of 173K.
  • ISM Services PMI eased at 50.6 against the expected 52.6 and 52.7 prior.

The Australian Dollar (AUD) trades lower against the US Dollar (USD) on Monday. The AUD/USD pair experienced a volatile session on Friday, which was influenced by mixed economic data from the United States (US). Despite a robust US employment report, concerns linger over weaker business activity in the services sector, prompting investors to approach the economy’s outlook with caution.

Australia’s upcoming Retail Sales (MoM) data for November is due on Tuesday, expected to show a 1.2% increase from October’s 0.2% decline, could influence the Reserve Bank of Australia (RBA) policymakers to maintain elevated interest rates for an extended period. However, the recent Judo Bank Purchasing Managers Index (PMI) data revealed a contraction in business activities in both services and manufacturing sectors, which might have underscored the vulnerability of the Australian Dollar.

Chinese wealth manager Zhongzhi Enterprise Group has filed for bankruptcy liquidation, facing a staggering $64 billion in liabilities. As a major player in China’s $3 trillion shadow banking sector, its financial struggles could indicate contagion from the broader property debt crisis into the financial sector. This event will likely negatively impact the Aussie Dollar (AUD), given the close economic ties between China and Australia.

The US Dollar Index (DXY) moves sideways with a negative bias, possibly influenced by the decline in the short-term yield on the 2-year US Treasury bond. On Friday, the US Dollar lurched with fluctuations between gains and losses, which can be attributed to mixed US data.

US Bureau of Labor Statistics indicated a positive development in the job market. Nonfarm Payrolls rose to 216K in December, showing an improvement from the 173K reported in November. This figure surpassed the market expectation, which anticipated a rise of 170K. Furthermore, Average Hourly Earnings (YoY) improved to 4.1% from 4.0% prior. Meanwhile, the monthly index remained consistent at 0.4% against the expected decline of 0.3%.

The Institute for Supply Management (ISM) revealed the services sector slowed in December, as the Services Purchasing Managers Index (PMI) came in at 50.6 against the expected 52.6 and 52.7 prior. While the Services Employment Index reduced to 43.3 from the previous reading of 50.7.

Thomas Barkin, the President of the Federal Reserve Bank of Richmond, provided insights into the US labor market, noting that it is currently experiencing a steady softening pattern. His view suggests that a reacceleration of the labor market seems unlikely at this juncture.

The president of the Federal Reserve Bank of Dallas, Lorie K. Logan, provided insights on Saturday, suggesting that a rate hike should not be ruled out given the recent easing in financial conditions. She emphasized the importance of avoiding premature easing, which could stimulate demand. Maintaining sufficiently tight financial conditions is seen as crucial to managing the risk of inflation picking back up and potentially reversing progress.

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

  • Australia Judo Bank Services PMI reported a reading of 47.1, falling short of market expectations that it would remain consistent at 47.6. The Composite PMI decreased to 46.9 from the previous figure of 47.4.
  • Australia’s Judo Bank Manufacturing PMI indicated a modest contraction in manufacturing activity, declining to 47.6 in December from the previous reading of 47.8.
  • China Caixin Services PMI rose to 52.9 in December, exceeding the 51.6 expected and 51.5 prior.
  • US ADP Employment Change added 164K new positions, surpassing the previous figure of 101K and the market expectation of 115K.
  • US Initial Jobless Claims for the week ending on December 29 displayed positive signs for the labor market, decreasing to 202K from the previous 220K, beating the anticipated 216K.
  • US S&P Global Composite PMI for December reported a minor dip in business activities, registering a reading of 50.9 compared to the market consensus of a steady 51.0.

Technical Analysis: Australian Dollar hovers below the major barrier at 0.6750

The Australian Dollar traded near 0.6730 on Monday. It faces a barrier at the nine-day Exponential Moving Average (EMA) of 0.6748, which aligns with major resistance at the 0.6750 level. A successful breakthrough above the latter could pave the way for the AUD/USD pair to challenge the psychological barrier at 0.6800. On the downside, the 23.6% Fibonacci retracement at 0.6725 acts as the immediate support followed by the psychological level at 0.6700. A break below the psychological level could push the AUD/USD pair to retest the major support at 0.6650 and the 38.2% Fibonacci retracement level at 0.6637.

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 EUR GBP CAD AUD JPY NZD CHF
USD   0.04% 0.04% 0.03% 0.04% -0.22% 0.06% 0.07%
EUR -0.04%   0.01% 0.00% 0.01% -0.24% 0.03% 0.03%
GBP -0.04% -0.01%   0.00% 0.01% -0.25% 0.03% 0.02%
CAD -0.03% 0.01% 0.01%   0.01% -0.23% 0.03% 0.04%
AUD -0.04% 0.00% 0.00% -0.01%   -0.24% 0.02% 0.03%
JPY 0.19% 0.26% 0.24% 0.26% 0.27%   0.27% 0.27%
NZD -0.05% -0.02% -0.02% -0.02% -0.01% -0.27%   0.01%
CHF -0.07% -0.03% -0.03% -0.03% -0.02% -0.28% 0.00%  

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).

RBA FAQs

What is the Reserve Bank of Australia and how does it influence the Australian Dollar?

The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.

How does inflation data impact the value of the Australian Dollar?

While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.

How does economic data influence the value of the Australian Dollar?

Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.

What is Quantitative Easing (QE) and how does it affect the Australian Dollar?

Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.

What is Quantitative tightening (QT) and how does it affect the Australian Dollar?

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.

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1 COMMENT

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