Home Forex The Aussie dollar is trying to continue its winning streak against a subdued US dollar

The Aussie dollar is trying to continue its winning streak against a subdued US dollar

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  • The Australian dollar is rising while the US dollar is falling due to lower 10-year US Treasury yields.
  • Australia’s central bank is expected to cut its key interest rate after softer data on consumer confidence and a change in employment.
  • The AUD could find support as the domestic equity market surges after a rebound in US markets on Friday.
  • The PBoC has kept its Loan Prime Rate (LPR) steady at 3.45% and 4.20% for one year and five years, respectively.
  • The US and UK could step up their campaign against Iran-backed Houthi terrorists in Yemen.

The Australian dollar (AUD) is hovering around the psychological level of 0.6600 on Monday amid market uncertainty caused by discussions between the United States (US) and the United Kingdom (UK) on stepping up action against Iran-backed Houthi terrorists in Yemen. Still, the AUD/USD pair is seeing some gains from subdued American dollar (USD), affected by the reduction in long-term US government bond yields.

The Aussie dollar faces a setback on speculation of a potential interest rate cut by the Reserve Bank of Australia (RBA) soon. This speculation is fueled by the latest humbled Australian Data on consumer confidence and employment change. However, the AUD could encourage gains in the domestic stock market, mirroring the rally in the US that pushed the S&P 500 and Nasdaq to new records on Friday. This increase was driven by expectations that the US central bank (Fed) is ready to cut interest rates rates later in the year. In addition, optimism was supported by projections from the world’s largest contract chip maker, Taiwan Semiconductor Manufacturing, suggesting forecast more than 20% revenue growth in 2024, which had a positive impact on global stocks.

The People’s Bank of China decided to keep its Loan Prime Rate (LPR) at the same level for both one-year and five-year periods. The rate remains at 3.45% for one-year terms and 4.20% for five-year terms.

The US Dollar Index (DXY) is consolidating after recent losses in the previous session. The US dollar could find some support on concerns about maritime trade in the Red Sea. The US and UK are trying to step up their campaign without provoking a wider conflict with Iran. Other ships divert from the Suez Canal and the Red Sea. Shipping vessels are assessing the risks associated with sailing in the Red Sea as insurance costs rise. Choosing an alternative route around the southern tip of Africa can increase delivery times, shipping costs and inflation. This situation could improve risk aversion sentiments that led traders to seek the safe haven of the US dollar, subsequently exerting downward pressure on the AUD/USD pair.

San Francisco Fed President Mary Daly expressed her belief on Friday that the central bank still has a long way to go to bring inflation back to its 2.0% target. She emphasized that it is premature to consider interest rate cuts as an immediate measure. Atlanta Fed President Raphael Bostic reiterated his stance on expecting a rate cut before the Fed enters a “blackout” period ahead of the next rate meeting scheduled for January 31. Bostic emphasized his openness to adjusting his outlook on the timing of rate cuts, stressing that the Fed remains data-dependent.

Daily Digest Market Movers: Australian dollar rises on weaker US dollar

  • Australian consumer inflation expectations remained steady at 4.5% in January.
  • Australia’s seasonally adjusted unemployment rate remained at 3.9%, in line with December expectations.
  • Australian employment change decreased by 65.1 thousand. compared to the expected increase of 17.6 thousand
  • Michigan’s preliminary U.S. consumer confidence index rose to 78.8 in January from 69.7 previously, beating expectations of 70.
  • The change in US existing home sales (MoM) fell 1.0% in December, compared to a previous increase of 0.8%.
  • US Housing Starts (MoM) beat expectations in December, coming in at 1.46 million, compared to expectations of 1.426 million.
  • U.S. building permits rose to 1.495 million for the month, beating the market consensus of 1.48 million.
  • Initial U.S. jobless claims for the week ended Jan. 12 fell to 187,000 from a previous reading of 203,000.

Technical analysis: The Australian dollar is moving above the psychological level at 0.6550

The Australian dollar is trading near 0.6610 on Monday. In the AUD/USD pair, potential resistance is around the nine-day exponential moving average (EMA) at 0.6624, followed by a significant level at 0.6650. If the pair breaks this major level, it can aim for a test of the psychological level at 0.6700. On the downside, immediate support is seen at the psychological level of 0.6600, followed by the 50% retracement level at 0.6568 and then major support at 0.6550. A break below the latter could prompt the AUD/USD pair to explore levels around the psychological 0.6500 mark in conjunction with the 61.8% Fibonacci retracement level at 0.6497.

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 -0.11% -0.08% -0.07% -0.18% -0.22% -0.25% -0.10%
euros 0.11% 0.03% 0.04% -0.05% -0.09% -0.12% 0.03%
GBP 0.08% -0.03% 0.00% -0.07% -0.12% -0.14% -0.01%
CAD 0.06% -0.04% -0.01% -0.08% -0.13% -0.15% -0.02%
AUD 0.17% 0.05% 0.07% 0.10% -0.05% -0.07% 0.07%
JPY 0.22% 0.06% 0.15% 0.12% 0.04% -0.01% 0.11%
NZD 0.22% 0.10% 0.13% 0.14% 0.04% -0.01% 0.11%
CHF 0.10% -0.03% 0.01% 0.02% -0.07% -0.12% -0.14%

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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