Australian Dollar Holds Steady Amid Mixed Sentiment, Awaits US CPI

The Australian Dollar (AUD) remains stable in the Asian trading session on Monday, despite a mixed sentiment prevailing in the market. Investors are awaiting crucial US inflation data, particularly the Consumer Price Index (CPI) scheduled for release on Tuesday. The AUD has gained ground against the US Dollar (USD) due to a risk-on sentiment, but concerns about deflation in China are dampening overall sentiment.

Despite a record surge in US markets on Friday, the Australian money market moved lower on Monday, indicating a cautious approach among traders. The decline in the US Dollar Index (DXY) also contributes to the AUD’s strength, despite stable US Treasury yields. Dallas Federal Reserve (Fed) Bank President Lorie Logan’s remarks on Friday, indicating no urgent need for interest rate cuts, further influence market sentiment.

In terms of economic indicators, Australia’s December AiG Industry Index showed a decline, while Retail Sales improved slightly in the fourth quarter. Additionally, the Commonwealth Bank of Australia (CBA) forecasts a reduction in the benchmark interest rate for 2024, with the initial cut expected in September. In China, the Consumer Price Index (CPI) grew slightly below expectations, while the Producer Price Index (PPI) declined more than anticipated.

Technically, the AUD/USD pair is hovering around 0.6520, below the nine-day Exponential Moving Average (EMA) and the significant level of 0.6550. A breakthrough above these levels could lead to further upward movement, with key targets at 0.6563 and 0.6600. Conversely, key support levels are expected at 0.6500, 0.6468, and 0.6450.

Overall, the Australian Dollar remains steady as traders await key economic data and monitor market sentiment for further direction.

AUD/USD: Daily Chart

Australian Dollar price today

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

USD 0.04%0.02%0.01%0.03%-0.01%0.22%0.06%
EUR-0.07% -0.03%-0.05%-0.03%-0.07%0.17%-0.01%
GBP-0.03%0.01% -0.02%0.00%-0.04%0.19%0.02%
CAD-0.02%0.02%0.00% 0.00%-0.03%0.20%0.03%
AUD-0.03%0.01%-0.01%-0.01% -0.02%0.22%0.01%
JPY0.00%0.04%0.06%0.01%0.03% 0.23%0.06%
NZD-0.24%-0.17%-0.20%-0.21%-0.20%-0.23% -0.19%
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).


What key factors drive the Australian Dollar?

One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.

How do the Reserve Bank of Australia’s actions affect the Australian dollar?

The Reserve Bank of Australia (RBA) controls the Australian Dollar (AUD) by determining the interest rates that Australian banks may lend to one another. This effects the overall level of interest rates in the economy. The RBA’s principal purpose is to keep inflation at 2-3% by raising or lowering interest rates. Relatively high interest rates in comparison to other major central banks help the AUD, while relatively low rates do the reverse. The RBA may also affect credit conditions via quantitative easing and tightening, with the former AUD-negative and the latter AUD-positive.

How does the health of the Chinese economy affect the Australian dollar?

China is Australia’s greatest trade partner, hence the health of the Chinese economy has a significant impact on the value of the Australian dollar. When the Chinese economy is doing well, it acquires more raw resources, commodities, and services from Australia, increasing demand for the AUD and raising its value. The converse is true when the Chinese economy does not expand as quickly as projected. Positive or negative shocks in Chinese economic figures often have a direct influence on the Australian dollar and its counterparts.

How does the price of iron ore affect the Australian dollar?

According to 2021 statistics, Australia’s main export is iron ore, worth $118 billion per year, with China as its principal destination. Thus, the price of iron ore may influence the Australian dollar. In general, when the price of iron ore rises, so does the Australian dollar, since aggregate demand for the currency grows. The converse is true if the price of iron ore declines. Higher iron ore prices also increase the possibility of Australia having a positive trade balance, which benefits the AUD.

How does the trade balance affect the Australian dollar?

The Trade Balance, or the difference between what a nation receives from its exports and what it spends for its imports, is another factor that may impact the value of the Australian dollar. If Australia produces highly sought-after exports, its currency will appreciate solely due to the excess demand produced by overseas purchasers desiring to acquire its goods vs what it spends on imports. As a result, a positive net Trade Balance boosts the Australian dollar, whereas a negative Trade Balance has the reverse impact.

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