Home Forex Aussie rises on subdued US dollar, RBA keeps official cash rate at 4.35%

Aussie rises on subdued US dollar, RBA keeps official cash rate at 4.35%

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  • Australian dollar strengthens after RBA interest rate decision.
  • Australian retail sales improved 0.3% in the fourth quarter from 0.2% in the previous quarter.
  • As expected, the RBA kept the OCR at 4.35% at the February meeting.
  • RBA governor Michele Bullock cited a 2025 inflation forecast of 2.8%.
  • The US dollar rose as the ISM Services PMI rose to 53.4, beating expectations of 52.0.

The Australian dollar (AUD) recovered its recent losses on Tuesday. The AUD strengthened against the US dollar (USD) as the Reserve Bank of Australia (RBA) kept its official cash rate (OCR) at 4.35% as expected at its February meeting. However, the AUD/USD pair weakened due to hawkish comments from Federal Reserve (Fed) Chairman Jerome Powell, along with lower commodity prices.

The Australian Bureau of Statistics released retail sales (QoQ) data on Tuesday, which indicated an improvement of 0.3% in the fourth quarter, compared with growth of 0.2% previously. Australia’s economy is going through a cost of living crisis, there seems to be limited room for it RBA policymakers to further raise interest rates. Instead, the focal point now shifts to when the central bank could start cutting interest rates. Investors will be watching closely RBA Governor Michele Bullock’s upcoming speech on the monetary policy outlook, which seeks further insights into the central bank’s stance and potential future actions.

RBA Governor Michele Bullock said at a press conference after the interest rate decision that the Reserve Bank of Australia does not determine anything about policy decisions. She emphasized that the bank perceives the risks as balanced and is actively looking for data that confirms the return of inflation to the target level. Governor Bullock expressed the view that the central bank may be on a potentially narrow path to achieving the goal of returning inflation back to target. In addition, it cited an inflation forecast of 2.8% for 2025.

The American dollar The index (DXY) posted a notable rally after the Federal Reserve’s hawkish stance, driven by robust ISM Services data for January. The ISM Services PMI beat expectations, registering at 53.4, beating both the consensus reading of 52.0 and 50.5 from the previous month. In addition, the ISM service employment index saw an improvement, rising to 50.5 from the previous reading of 43.8.

Federal Reserve System Chairman Jerome Powell contributed to the strengthening of the US dollar by dampening expectations of rate cuts. Powell emphasized the importance of monitoring inflation’s sustained movement toward the 2% core target. This stance led to a rise in US Treasury yields, which put downward pressure on the AUD/USD pair.

Daily Digest Market Movers: Australian dollar weakens on Fed hawkish stance

  • Australia’s balance of trade (MoM) for January was cut to 10,959 million, compared to a revised figure of 11,764 million in December.
  • Australia’s Judo Bank Composite Purchasing Managers’ Index (PMI) improved to 49 in January from 48.1 previously. The services PMI saw an improvement, rising to 49.1 from the previous reading of 47.9.
  • Aussie TD Securities Inflation (YoY) rose 4.6% from a previous rise of 5.2%.
  • Australia’s TD Securities Inflation (MoM) rose 0.3% in January, down from December’s 1.0% increase.
  • China’s Caixin Services PMI eased to 52.7 in January from a previous reading of 52.9.
  • The ISM paid service prices in the US rose to 64.0 in January from 56.7 in December.
  • The US services New Orders Index for January improved to 55.0 from the previous reading of 52.8.
  • The US S&P Global Composite PMI came in at 52.0 in January, down slightly from 52.3 a year ago.

Technical analysis: The Australian dollar could test the psychological level of 0.6500

The Australian dollar traded around 0.6490 on Tuesday, below the 0.6500 resistance level. A potential breach above this level could act as a catalyst AUD/USD pair to test the resistance zone near the main level at 0.6550. Subsequently, another move up may lead to meeting 23.6% Fibonacci retracement level at 0.6563 and finally reached the 21-day exponential moving average (EMA) at 0.6587. On the downside, immediate support at the psychological level of 0.6450 is expected after another psychological support level at 0.6400.

AUD/USD: Daily chart

Today’s price in Australian dollars

The table below shows today’s percentage change in the Australian Dollar (AUD) against the major listed currencies. The Australian dollar was the strongest against the US dollar.

American dollar euros GBP CAD AUD JPY NZD CHF
American dollar -0.15% -0.20% -0.25% -0.53% -0.12% -0.36% -0.15%
euros 0.17% -0.04% -0.09% -0.38% 0.05% -0.20% 0.02%
GBP 0.20% 0.04% -0.05% -0.34% 0.07% -0.16% 0.04%
CAD 0.23% 0.08% 0.05% -0.28% 0.13% -0.11% 0.09%
AUD 0.53% 0.37% 0.33% 0.28% 0.41% 0.17% 0.38%
JPY 0.12% -0.02% -0.07% -0.13% -0.43% -0.23% -0.03%
NZD 0.35% 0.19% 0.15% 0.10% -0.19% 0.23% 0.20%
CHF 0.15% -0.01% -0.05% -0.09% -0.38% 0.04% -0.20%

The heat map shows the percentage changes of major currencies against each other. The base currency is selected from the left column, while the quote currency is selected from the top row. For example, if you select the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change shown in the box will be EUR (base)/JPY (rate).

Frequently asked questions about the Australian dollar

One of the most important factors for the Australian dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). As Australia is a resource-rich country, another key factor is the price of its biggest export, iron ore. The health of the Chinese economy, its biggest trading partner, is a factor, as is inflation in Australia, its growth rate and the Trade Balance. Market sentiment – ​​whether investors are taking on riskier assets (risk-on) or seeking safe havens (risk-off) – is also a factor, with risk-on positive for the AUD.

The Reserve Bank of Australia (RBA) influences the Australian dollar (AUD) by setting the interest rates at which Australian banks can lend to each other. This affects the level of interest rates in the economy as a whole. The main aim 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 vice versa for relatively low ones. The RBA can also use quantitative easing and tightening to influence credit conditions, the former AUD-negative and the latter AUD-positive.

China is Australia’s largest trading partner, so the health of the Chinese economy has a big impact on the value of the Australian dollar (AUD). When China’s economy is doing well, it buys more raw materials, goods and services from Australia, raising demand for the AUD and increasing its value. The opposite is the case when China’s economy is not growing as fast as expected. Therefore, positive or negative surprises in Chinese growth data 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 in 2021 figures, with China as the primary destination. So the price of iron ore can be a driver for the Australian dollar. Generally, if the price of iron ore rises, so does the AUD as aggregate demand for the currency rises. The opposite case is a decrease in the price of iron ore. Higher iron ore prices also tend to lead to a greater likelihood of a positive trade balance for Australia, which is also positive for the AUD.

Another factor that can affect the value of the Australian dollar is the trade balance, which is the difference between what a country earns from exports and what it pays for imports. If Australia produces highly sought-after exports, then its currency will gain in value purely from the excess demand created by foreign buyers trying to buy its exports over what it spends on buying imports. Therefore, a positive net trade balance strengthens the AUD, with the opposite effect if the trade balance is negative.

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