Australian Dollar moves sideways after posting recent losses, focus on US labor data


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  • Australian Dollar faced challenges on risk-off mood and bearish commodity prices.
  • Australian Services and Composite PMI reduced to 47.1 and 46.9, respectively, in December.
  • China Services PMI rose to 52.9 in December, exceeding the 51.6 expected and 51.5 prior.
  • US ISM Manufacturing PMI increased to 47.4 in December from the previous reading of 46.7.

The Australian Dollar (AUD) faces challenges as it struggles to halt its losing streak on Thursday. The AUD/USD pair is under downward pressure due to risk-off sentiment and a general bearish session in the commodity complex. The softer Judo Bank Purchasing Managers Index (PMI) data further adds pressure on the Aussie Dollar (AUD). Moreover, the improved Chinese services data could limit the losses of the AUD. The Caixin Services PMI rose to 52.9 in December, exceeding the 51.6 expected and 51.5 prior.

Australia’s Services sector contracted in December, according to the latest Judo Bank Services PMI. The index reported a reading of 47.1, falling short of market expectations that it would remain consistent at 47.6. Additionally, the Composite PMI decreased to 46.9 from the previous figure of 47.4. This marks the fastest pace of Services contraction since the third quarter of 2021.

Matthew De Pasquale, Economist at Judo Bank, suggests that recent readings over the past two months indicate that while the Australian economy is slowing down, the slowdown is not accelerating. Despite households grappling with continuous challenges posed by elevated interest rates, both the output and new order indexes persist at levels that align with the Reserve Bank of Australia’s (RBA) anticipated soft landing scenario.

The US Dollar Index (DXY) seems to remain on a positive trajectory, strengthened by improved United States (US) Treasury yields. The positive momentum may also find support from the enhanced ISM Manufacturing PMI report, which showed an increase to 47.4 in December from the previous reading of 46.7, surpassing the market consensus of 47.1. However, JOLTS Job Openings contracted to 8.79 million, falling short of the expected figure of 8.85 million in November. Traders await US labor market data releases including ADP Employment Change and Initial Jobless Claims.

The December minutes from the Federal Open Market Committee (FOMC) suggest that participants think the policy rate has either reached or is close to its highest point in the current tightening cycle. However, they emphasized that the specific trajectory of the policy would hinge on the evolving economic conditions.

Daily Digest Market Movers: Australian Dollar faces challenges on risk-off sentiment

  • Australia’s Judo Bank Manufacturing PMI indicated a modest contraction in manufacturing activity, declining to 47.6 in December from the previous reading of 47.8.
  • RBA’s internal documents revealed a slip in domestic tourism demand. Additionally, consumers are reported to be trading down to more affordable products or reducing their overall purchases due to cost-of-living pressures. However, the documents suggest that private sector wage growth has stabilized at around 4.0%.
  • Australian Prime Minister Anthony Albanese announced that he has directed Treasury and Finance to explore measures that can alleviate the financial burden on families in terms of cost of living without exerting additional inflation pressure.
  • The characterization of the January 13 presidential and parliamentary elections by China as a choice between war and peace could add to the geopolitical tensions in the region. A senior Chinese official has urged Taiwan’s people to make a “correct choice,” hinting at the potential consequences based on election outcomes.
  • China’s NBS Manufacturing PMI for December reduced to the reading of 49.0 from the previous 49.4 figure. The market expectation was an increase to 49.5. While NBS Non-Manufacturing PMI improved to 50.4 from the 50.2 prior but fell short of the 50.5 expected.
  • US ISM Manufacturing Employment Index improved to 48.1 in December from 45.8 in November.
  • US S&P Global Manufacturing PMI posted a lower-than-expected figure of 47.9, diverging from the anticipated consistency at 48.2.

Technical Analysis: Australian Dollar moves below the key level at 0.6750

The Australian Dollar trades near 0.6730 on Thursday, with a significant resistance level at 0.6750 and the nine-day Exponential Moving Average (EMA) at 0.6765 potentially acting as key hurdles. A successful breakthrough above the EMA could pave the way for the AUD/USD pair to challenge the psychological barrier at 0.6800. On the downside, crucial support lies at the 23.6% Fibonacci retracement level of 0.6725. If breached, it might exert downward pressure, leading the pair towards psychological support at 0.6700, followed by the 38.2% Fibonacci retracement level at 0.6637.

AUD/USD: Daily Chart

(The name was corrected to “Matthew De Pasquale” instead of “Matthew De Pasuale” on Thursday at 02:20 GMT in the third paragraph.)

Australian Dollar price today

The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the weakest against the New Zealand Dollar.

  USD EUR GBP CAD AUD JPY NZD CHF
USD   0.03% 0.07% -0.01% 0.03% 0.29% -0.12% 0.01%
EUR -0.03%   0.04% -0.04% -0.01% 0.26% -0.14% -0.01%
GBP -0.07% -0.04%   -0.09% -0.05% 0.23% -0.19% -0.05%
CAD 0.01% 0.05% 0.10%   0.04% 0.31% -0.10% 0.06%
AUD -0.04% -0.02% 0.05% -0.04%   0.27% -0.14% -0.01%
JPY -0.30% -0.25% -0.22% -0.31% -0.28%   -0.41% -0.27%
NZD 0.08% 0.14% 0.19% 0.11% 0.10% 0.37%   0.10%
CHF -0.02% 0.01% 0.05% -0.03% 0.01% 0.27% -0.13%  

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick 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 EUR (base)/JPY (quote).

 

RBA FAQs

The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving 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 had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.

Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.

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. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.



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