- The Australian dollar is moving sideways amid the prevailing risk sentiment.
- The Reserve Bank of Australia is expected to cut interest rates following the release of weak consumer confidence and employment figures.
- The Australian dollar could find support as the local stock market rises after a rally in US markets on Friday.
- The People’s Bank of China (PBoC) is keeping its key loan interest rate (LPR) steady at 3.45% and 4.20% for one year and five years, respectively.
- The US dollar could gain support as a safe haven as the threat of trade disruption in the Red Sea escalates.
The Australian dollar (AUD) hovered around a psychological level of 0.6600 on Monday amid market uncertainty driven by discussions between the US and the UK over intensifying measures against Iran-backed Houthi terrorists in Yemen. However, the AUD/USD pair is finding some upside from the weakness of the US Dollar (USD), weighed down by lower long-term US Treasury yields.
The Australian dollar is facing a setback amid speculation about possible early interest rate cuts by the Reserve Bank of Australia (RBA). This speculation is fueled by recent weak figures for Australian consumer confidence and employment change. However, the Australian dollar could encourage a rally in the local stock market, mirroring the rally in the United States that pushed the S&P 500 and Nasdaq to new records on Friday. The rise was driven by expectations that the US Federal Reserve is preparing to cut interest rates later in the year. Furthermore, optimism was driven by expectations from the world’s largest contract chip maker, Taiwan Semiconductor Manufacturing, indicating revenue growth expectations of more than 20% in 2024, which had a positive impact on global stocks.
The People’s Bank of China has decided to keep the loan base rate (LPR) fixed for one and five years. The rate remains at 3.45% for the one-year period and 4.20% for the five-year period.
The US Dollar Index (DXY) appears to be continuing its losing streak. However, the US dollar may find some support due to concerns about disruption to maritime trade in the Red Sea. The United States and the United Kingdom are looking to intensify their campaign without inciting a broader conflict with Iran. More ships are being diverted away from the Suez Canal and the Red Sea. Cargo ships are assessing the risks associated with the Red Sea, as insurance costs rise. Choosing the alternative route around the southern tip of Africa may result in increased delivery times, shipping costs and inflation. This situation may enhance risk aversion sentiment, prompting traders to look for the US dollar as a safe haven, thus exerting downward pressure on the AUD/USD pair.
San Francisco Federal Reserve Bank President Mary Daly expressed her belief on Friday that the central bank still has significant work to do in bringing inflation down to its 2.0% target. She stressed that it is too early to consider lowering interest rates as an imminent measure. Atlanta Fed President Rafael Bostic reiterated his stance on interest rate cut expectations before the Fed enters a “blackout” period ahead of its next interest rate meeting scheduled for January 31. Bostic stressed that he is open to adjusting his expectations on the timing of interest rate cuts and stressed that the Fed remains data-dependent.
Daily summary Market drivers: The Australian dollar rises due to the weakness of the US dollar
- Consumer inflation expectations in Australia remained steady at 4.5% in January.
- Australia’s seasonally adjusted unemployment rate settled at 3.9%, in line with December expectations.
- The change in Australian employment decreased by 65.1K, contrary to the expected increase of 17.6K.
- Michigan’s preliminary U.S. Consumer Confidence Index rose to 78.8 in January from 69.7 previously, beating the expected figure of 70.
- The change in US existing home sales decreased by 1.0% in December versus the previous increase of 0.8%.
- The number of US home starts exceeded expectations in December, reaching 1.46 million compared to expectations of 1.426 million.
- US building permits rose for the month, rising to 1.495 million, beating market expectations of 1.48 million.
- US initial jobless claims for the week ending January 12 fell to 187,000 from the previous reading of 203,000.
Technical Analysis: The Australian dollar is hovering above the psychological level at 0.6550
The Australian dollar is trading near 0.6610 on Monday. In the AUD/USD pair, potential resistance lies around the nine-day Exponential Moving Average (EMA) at 0.6624, followed by an important level at 0.6650. If the pair exceeds this key level, it may target a test of the psychological level of 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 push AUD/USD to explore levels around the 0.6500 psychological mark, coinciding with the 61.8% Fibonacci retracement level at 0.6497.
AUD/USD: daily chart
Australian dollar price today
The table below shows the percentage change in the Australian Dollar (AUD) against the major currencies listed today. The Australian dollar was the weakest against the Japanese yen.
| American dollar | euro | GBP | Bastard – scoundrel | Australian dollar | JPY | New Zealand dollar | Swiss franc | |
| American dollar | -0.11% | -0.14% | 0.02% | 0.02% | -0.18% | 0.04% | -0.06% | |
| euro | 0.11% | -0.03% | 0.12% | 0.12% | -0.10% | 0.13% | 0.06% | |
| GBP | 0.14% | 0.04% | 0.14% | 0.16% | -0.06% | 0.18% | 0.08% | |
| Bastard – scoundrel | -0.01% | -0.11% | -0.15% | 0.03% | -0.20% | 0.03% | -0.06% | |
| Australian dollar | -0.02% | -0.13% | -0.17% | 0.00% | -0.21% | 0.02% | -0.06% | |
| JPY | 0.19% | 0.08% | 0.09% | 0.20% | 0.21% | 0.24% | 0.13% | |
| New Zealand dollar | -0.03% | -0.14% | -0.18% | -0.03% | -0.02% | -0.22% | -0.10% | |
| Swiss franc | 0.06% | -0.05% | -0.08% | 0.07% | 0.06% | -0.13% | 0.09% |
The heat map shows the percentage changes in major currencies versus each other. The base currency is chosen from the left column, while the counter currency is chosen 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 displayed in the box will represent the EUR (base)/JPY (quote).
Frequently asked questions about interest rates
Interest rates are charged by financial institutions on loans made to borrowers and are paid as interest to savers and depositors. They are affected by base lending rates, which are set by central banks in response to changes in the economy. Central banks typically have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%.
If inflation falls below the target, the central bank may lower key lending rates, with the aim of stimulating lending and boosting the economy. If inflation rises significantly above 2%, this usually results in the central bank raising key lending rates in an attempt to reduce inflation.
Higher interest rates generally help strengthen a country’s currency because they make it a more attractive place for global investors to put their money.
High interest rates generally affect the price of gold because they increase the opportunity cost of holding gold rather than investing in interest-bearing assets or putting cash in the bank.
If interest rates are high this usually causes the price of the US dollar (USD) to rise, and since gold is priced in dollars, this has the effect of lowering the price of gold.
The federal funds rate is the overnight interest rate at which U.S. banks lend to each other. It is the key rate that is frequently set by the Federal Reserve at FOMC meetings. It is set as a range, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the quoted figure.
Market expectations of the future federal funds rate are tracked by the CME FedWatch tool, which maps how many financial markets will behave in anticipation of the Federal Reserve’s future monetary policy decisions.