Home Forex Australian dollar weakens despite improved consumer confidence, US dollar remains calm

Australian dollar weakens despite improved consumer confidence, US dollar remains calm

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  • Aussie dollar loses ground amid steady US dollar.
  • Australian consumer confidence jumped 6.2% to 86 in February.
  • The US dollar holds its position despite subdued US Treasury yields.
  • Year-on-year and month-on-month CPI in the US could ease to 3.0% and 3.0% in January, respectively. 0.2%.

The Australian dollar (AUD) retreats after posting gains in the previous two sessions, despite the release of better Australian consumer confidence data on Tuesday. The Westpac-Melbourne Institute consumer sentiment index rose 6.2% to 86 in February from 81 in January, the highest reading in 20 months. However, as of February 2022, the index remained below the neutral 100 mark.

The Australian dollar faces downward pressure as Australian inflation eases, leading to market sentiment that the Reserve Bank of Australia (RBA) has completed its monetary policy tightening cycle. This downward trend in the Australian dollar is weighing AUD/USD pair. In addition, the decline in the Australian money market may further limit the performance of the AUD.

The US dollar index (DXY) is holding steady after recent gains, with declines in US Treasury yields limiting strength American dollar (AMERICAN DOLLAR). Market sentiment is mixed as traders are cautious ahead of the release of key US inflation data scheduled for Tuesday, which could affect interest rate expectations.

Daily Digest Market Movers: Aussie drops amid steady US dollar

  • National Australia Bank's business confidence improved to 1 in January from a previously stagnant 0.
  • National Australia Bank's terms of business fell to 6 in January from the previous 8.
  • The RBA's head of economic analysis, Marion Kohler, highlighted the uncertainty surrounding current inflation projections for the Australian economy. However, it expects price growth to eventually return to a more moderate level by 2025.
  • The Commonwealth Bank of Australia (CBA) has forecast a 75 basis point cut in its key interest rate for 2024, with the initial cut expected in September.
  • China's headline CPI fell 0.8%, beating expectations for a 0.5% decline and the previous decline of 0.3%.
  • Dallas Federal Reserve (Fed) Bank President Lorie Logan noted on Friday that there is no immediate need to cut interest rates. It acknowledged “tremendous progress” in curbing inflation, but stressed the need for additional evidence to ensure the sustainability of this progress.
  • The US monthly budget report came in at -$22 billion in January, compared to expectations of -$21 billion and -$129 billion earlier.
  • The 3-month and 6-month bills were auctioned at 5.23% and 5.065% respectively.

Technical Analysis: The Australian Dollar is trading near 0.6530 ahead of the 14-day EMA

The Australian dollar is trading near 0.6530 on Tuesday, sitting below the immediate resistance of the 14-day exponential moving average (EMA) at 0.6544, in line with the main barrier at 0.6550. A break above this major level could potentially push the AUD/USD pair to target key levels such as 23.6% Fibonacci retracement level at 0.6563 and psychological resistance at 0.6600. On the downside, the psychological level of 0.6500 could act as immediate support. A break below the latter could push the AUD/USD pair to return to the previous week's low at 0.6468 followed by the major support level of 0.6450.

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 weakest against the Japanese yen.

American dollar euros GBP CAD AUD JPY NZD CHF
American dollar 0.04% 0.03% -0.01% 0.04% -0.02% 0.02% 0.03%
euros -0.04% -0.01% -0.05% -0.01% -0.06% -0.03% -0.01%
GBP -0.03% 0.01% -0.04% 0.00% -0.05% -0.01% -0.01%
CAD 0.01% 0.05% 0.04% 0.02% -0.01% 0.02% 0.05%
AUD -0.04% 0.01% 0.00% -0.04% -0.05% -0.02% 0.01%
JPY 0.02% 0.07% 0.05% 0.01% 0.05% 0.03% 0.05%
NZD -0.02% 0.02% 0.01% -0.03% 0.01% -0.03% 0.01%
CHF -0.03% 0.00% 0.00% -0.04% -0.03% -0.05% -0.01%

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 fall 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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