- The Australian dollar rose after the release of mixed Chinese data.
- The Australian currency is reversing recent losses on risk-on sentiment.
- China’s CPI fell year-on-year by 0.3% and the monthly figure fell to 0.1%.
- China’s trade balance in US dollars rose to $75.34 billion in December. While annual imports of the Chinese yuan increased by 1.6%.
- The upbeat US CPI helped support the US dollar.
The Australian Dollar (AUD) made a modest upward move, approaching the psychological level of 0.6700 on Friday after bouncing back after recording losses in the previous session. The AUD/USD pair is getting support for its upward movement as market expectations remain high regarding potential interest rate cuts by the US Federal Reserve in March and May. However, the pair saw a bearish shift following the release of better-than-expected inflation data from the US.
The Australian monthly CPI for October and November is marginally lower, suggesting headline inflation for the fourth quarter of 2023 is likely to fall below the Reserve Bank of Australia’s (RBA) annual forecast of 4.5%. Australian Bureau of Statistics (ABS) data on job vacancies, which show a decline for six consecutive quarters, is consistent with easing pressures in the labor market. These results suggest that there may not be any further interest rate increases from the RBA in February.
Australian data also showed that the increase in retail sales for November and the widening of the trade surplus for December were showing contradictory signals. These positive economic indicators could influence the RBA to refrain from implementing any monetary policy easing despite weak inflation data.
China’s Consumer Price Index (YoY) showed a decline of 0.3% in December, contrary to the expected decline of 0.4%. In addition, the monthly CPI showed a more moderate decline of 0.1%, compared to market expectations of 0.2%. The annual producer price index recorded a decline of 2.7%, slightly exceeding the expected decline of 2.6%.
China’s trade balance in US dollars rose to US$75.34 billion, up from US$68.39 billion previously, beating expectations of US$74.75 billion. Export figures (on an annual basis) showed growth of 2.3%, beating expectations of 1.7%. Meanwhile, annual imports in Chinese yuan rose by 1.6% compared to the previous 0.6%. These economic indicators point to a possible absence of policy tightening by the People’s Bank of China (PBoC) and indicate improving economic activities. These factors, coupled with close trade relations between China and Australia, are favorable for supporting the Australian dollar (AUD).
The US Dollar Index (DXY) maintains its position to build on recent gains following the release of positive US inflation data on Thursday. Despite a minor setback in the previous session due to lower US Treasury yields, the US Dollar (USD) is poised for potential advances on Friday as US yields show signs of improvement.
The U.S. Bureau of Labor Statistics reported that the Consumer Price Index rose to 3.4% year over year in December, beating November’s 3.1% and the market’s expected figure of 3.2%. In addition, monthly CPI growth for December showed an increase of 0.3%, exceeding market analysts’ expectations of 0.2%. The annual core CPI was 3.9%, down slightly from 4.0% in November, while the monthly figure remained steady at 0.3%, in line with expectations.
Traders are anticipating the US Producer Price Index (PPI) data for December, looking for additional insights into the US economic landscape. In addition to the PPI data, the market will be paying attention to Fed member Neel Kashkari’s speech later in the North American session, as it could provide more context and influence on market sentiment.
Daily Summary Market Movers: The Australian dollar is gaining on risk-on sentiment
- Australia’s trade surplus rose to 11,437 million per month in December, beating market expectations of 7,500 million and surpassing the previous reading of 7,129 million.
- The monthly Australian CPI for November showed a slight decline to 4.3%, slightly below market expectations of 4.4% from the previous figure of 4.9%.
- The Chinese Ministry of Defense urged the United States to stop providing support for provocations carried out by certain countries. China calls on the United States to adhere to the “one China principle” and stop arming Taiwan. Furthermore, the Department urges the United States to impose strict restrictions on front-line forces and refrain from raising security issues.
- New York Fed President John Williams said Wednesday that financial markets remain broadly responsive to new data. Williams expressed confidence in the Fed’s current position and noted that it is now appropriate to consider the future path of interest rates.
- US Initial Jobless Claims for the week ending January 5 fell to 202K versus market expectations of 210K and 203K previously.
Technical Analysis: The Australian dollar is hovering around the psychological level of 0.6700
The Australian dollar is trading near 0.6700 on Friday, positioned below the 14-day exponential moving average (EMA) at 0.6721. A potential break above the moving average (EMA) could push the AUD/USD pair towards the key resistance level at 0.6750. On the downside, crucial support is located at 0.6650, coinciding with the weekly low at 0.6647, acting as a major psychological support. A break below this level could push the AUD/USD pair to explore the vicinity around the 38.2% Fibonacci retracement level, located at 0.6637.
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 strongest against the Swiss franc.
| American dollar | euro | GBP | Bastard – scoundrel | Australian dollar | JPY | New Zealand dollar | Swiss franc | |
| American dollar | 0.00% | -0.02% | -0.06% | -0.20% | -0.09% | -0.22% | 0.06% | |
| euro | 0.01% | -0.02% | -0.06% | -0.22% | -0.09% | -0.25% | 0.08% | |
| GBP | 0.02% | 0.02% | -0.04% | -0.20% | -0.07% | -0.23% | 0.09% | |
| Bastard – scoundrel | 0.06% | 0.05% | 0.04% | -0.17% | -0.03% | -0.17% | 0.12% | |
| Australian dollar | 0.20% | 0.21% | 0.19% | 0.15% | 0.12% | -0.04% | 0.28% | |
| JPY | 0.10% | 0.08% | 0.06% | 0.01% | -0.11% | -0.17% | 0.15% | |
| New Zealand dollar | 0.23% | 0.25% | 0.23% | 0.18% | 0.04% | 0.16% | 0.32% | |
| Swiss franc | -0.06% | -0.07% | -0.08% | -0.12% | -0.26% | -0.15% | -0.29% |
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).
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages Australia’s monetary policy. Decisions are made by the Board of Governors at 11 annual meetings and ad hoc emergency meetings as needed. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2% to 3%, but also “to contribute to currency stability, full employment, economic prosperity and the well-being of the Australian people.” The main tool for achieving this is 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 been thought to be a negative factor for currencies because it reduces the value of money overall, the opposite is the case in modern times with the easing of cross-border capital controls. Moderately high inflation now tends to prompt central banks to raise interest rates, which in turn attracts more capital flows from global investors looking for a profitable place to keep their money. This increases demand for the local currency, which in Australia’s case is the Australian dollar.
Macroeconomic data measures the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in safe and growing economies rather than unstable and shrinking ones. Greater capital inflows increase aggregate demand and the value of the local currency. Classic indicators, such as GDP, manufacturing PMIs, services, employment and consumer opinion surveys can influence the Australian dollar. A strong economy may encourage the Reserve Bank of Australia to raise interest rates, which will also support the Australian dollar.
Quantitative easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. Quantitative easing is the process by which the Reserve Bank of Australia (RBA) prints Australian dollars (AUD) for the purpose of purchasing assets – typically government or corporate bonds – from financial institutions, thus providing them with much-needed liquidity. Quantitative easing usually leads to a weaker Australian dollar.
Quantitative tightening (QT) is the opposite of quantitative easing. It is implemented after quantitative easing when the economic recovery is underway and inflation begins to rise. While in QE, the Reserve Bank of Australia (RBA) buys government and corporate bonds from financial institutions to provide them with liquidity, in QT, the RBA stops purchasing any more assets, and stops reinvesting the capital owed on bonds it already holds. . It will be positive (or bullish) for the Australian dollar.