Home Forex The Australian dollar is consolidating after intraday gains on a steady US dollar

The Australian dollar is consolidating after intraday gains on a steady US dollar

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  • Aussie dollar gains ground on better domestic equity market after tech rally on Wall Street.
  • Australia’s muted employment data fueled speculation of an early interest rate cut by the RBA.
  • The US dollar is boosting demand as heightened tensions in the Red Sea bolster risk aversion.
  • Positive U.S. housing and job data are helping to moderate the Fed’s rate cut narrative in March.

The Australian dollar (AUD) is on an upward trajectory for the second day in a row on Friday. The Australian dollar is gaining positive momentum against American dollar (USD) on the back of a stronger domestic stock market, supported by a technology rally on Wall Street following robust United States (US) jobs data. The increase boosted market confidence in the economy, and investors are shrugging off uncertainties about the interest rate trajectory set by the Federal Reserve (Fed).

The Australian dollar is hitting a snag amid speculation of a potential interest rate cut by the Reserve Bank of Australia (RBA) soon. That belief gained strength after an unexpected drop in employment change data released on Thursday for December. Adding to this sentiment is a recent survey of 40 economists by “The Australian Financial Review” that respondents expect the RBA to start cutting interest rates as early as September.

The conflict in the Middle East is intensifying risk aversion sentiment as heightened tensions in the Red Sea prompt traders to seek safe-haven assets, leading to increased demand for the US dollar. This in turn puts downward pressure on the AUD/USD pair. The situation escalated when a US-led military coalition carried out a series of strikes on Houthi targets in Yemen in response to missile attacks by the Iran-backed Houthi group on naval vessels over the course of the week.

The US Dollar Index (DXY) is consolidating with a positive bias to continue its winning streak. Another round of favorable numbers in key US indicators provided further impetus to the US dollar’s upward bias and reinforced the prevailing narrative of a prolonged period of tightening. Monetary Policy by the US Fed. The upward movement in US Treasury yields is also adding to the positive momentum and providing additional support to the dollar.

US Housing Starts (MoM) beat expectations in December, coming in at 1.46 million, compared to expectations of 1.426 million. Building permits for the month also rose to 1.495 million, beating the market consensus of 1.48 million. Meanwhile, initial jobless claims for the week ended Jan. 12 eased to 187,000 from a previous reading of 203,000.

However, there was a steady decline in Philadelphia Fed The manufacturing survey for January recorded -10.6 versus an expected -7.0 decline. Looking ahead, traders are likely to pay attention to Michigan’s preliminary consumer sentiment index for January, with an expected improvement to 70 from December’s 69.7.

Daily Digest Market Movers: Australian dollar gains ground on better domestic market

  • 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
  • Australian consumer confidence fell 1.3% in January, compared with a previous increase of 2.7%.
  • China’s annual gross domestic product (GDP) rose 5.2% versus the 5.3% expected in the fourth quarter.
  • China’s December industrial production (YoY) rose 6.8%, which was expected to remain consistent at 6.6%.
  • Retail sales in China rose 7.4% year-on-year, missing the market consensus of 8.0%.
  • Federal Reserve Governor Christopher Waller warned that despite the positive development of the inflation outlook, the central bank is in no rush to outline plans to cut rates.
  • US retail sales (MoM) rose 0.6% in December, beating market consensus of 0.4% and 0.3% earlier.
  • US Retail Sales Control Group improved to 0.8% from a previous reading of 0.5%.
  • US retail sales ex Autos (MoM) rose 0.4%, compared with market expectations to remain consistent at 0.2%.

Technical analysis: The Australian dollar maintains its position above the key level at 0.6550

The Australian dollar is trading near 0.6580 on Friday, following the psychological resistance level at 0.6600. A breach of the barrier could push the AUD/USD pair closer to the nine-day exponential moving average (EMA) at 0.6623 followed by the key level at 0.6650. If the pair breaks the major level, it can try to test the psychological level at 0.6700. On the other hand, the 50% retracement level at 0.6568 before the main level at 0.6550 could act as an immediate support zone. A break below the zone could influence the AUD/USD pair to move in the region around the psychological level at 0.6500 in line 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 strongest against the New Zealand dollar.

American dollar euros GBP CAD AUD JPY NZD CHF
American dollar -0.09% -0.02% -0.02% -0.06% 0.08% 0.15% -0.01%
euros 0.09% 0.06% 0.07% 0.01% 0.17% 0.25% 0.09%
GBP 0.02% -0.07% 0.00% -0.05% 0.10% 0.18% 0.04%
CAD 0.01% -0.08% -0.02% -0.07% 0.08% 0.16% 0.00%
AUD 0.08% 0.01% 0.08% 0.06% 0.17% 0.22% 0.07%
JPY -0.09% -0.18% -0.09% -0.10% -0.13% 0.08% -0.07%
NZD -0.16% -0.24% -0.17% -0.17% -0.23% -0.07% -0.13%
CHF -0.01% -0.07% -0.03% -0.02% -0.09% 0.12% 0.15%

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).

The most frequently asked questions about the RBA

The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are taken by the Board of Governors at 11 meetings a year and at special ad hoc meetings as needed. The RBA’s primary mandate is to maintain price stability, meaning an inflation rate of 2-3%, but also to “..contribute to currency stability, full employment and the economic prosperity and well-being of the Australian people”. Its main tool to do 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.

While inflation has always traditionally been seen as a negative factor for currencies as it generally reduces the value of money, in modern times with the loosening of cross-border capital controls the opposite has been the case. Slightly higher inflation now tends to lead central banks to raise interest rates, which in turn has the effect of attracting more capital inflows from global investors looking for a lucrative place to keep their money. This increases the demand for the local currency, which in the case of Australia is the Australian dollar.

Macroeconomic data measures the health of an economy and can impact the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than in uncertain and shrinking economies. Greater capital inflows increase aggregate demand and the value of the domestic currency. AUD can influence classic indicators such as GDP, manufacturing and services PMI, employment and consumer sentiment surveys. A strong economy may prompt the Reserve Bank of Australia to raise interest rates, which also supports the AUD.

Quantitative Easing (QE) is a tool used in extreme situations where interest rate cuts are 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) to buy assets – usually government or corporate bonds – from financial institutions, providing them with much-needed liquidity. QE usually results in a weaker AUD.

Quantitative tightening (QT) is the opposite of QE. It is carried out after QE, when the economic recovery is underway and inflation starts to rise. While in QE the Reserve Bank of Australia (RBA) buys government and corporate bonds from financial institutions to provide liquidity, in QT the RBA stops buying more assets and stops reinvesting the principal due in bonds it already holds. This would be positive (or bullish) for the Australian dollar.

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