Australian Dollar hovers around a major level ahead of US employment data

  • 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) halts 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

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

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 Japanese Yen.

USD -0.05%-0.05%-0.16%-0.28%0.40%-0.36%-0.08%
EUR0.06% 0.01%-0.11%-0.23%0.45%-0.33%-0.02%
GBP0.04%-0.02% -0.12%-0.24%0.44%-0.34%-0.03%
CAD0.16%0.11%0.11% -0.12%0.56%-0.19%0.12%
AUD0.28%0.23%0.25%0.14% 0.68%-0.11%0.21%
JPY-0.41%-0.44%-0.44%-0.57%-0.68% -0.80%-0.46%
NZD0.38%0.33%0.34%0.24%0.10%0.79% 0.31%
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 decisions of the Reserve Bank of Australia impact the Australian Dollar?

The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.

How does the health of the Chinese Economy impact the Australian Dollar?

China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.

How does the price of Iron Ore impact the Australian Dollar?

Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.

How does the Trade Balance impact the Australian Dollar?

The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.

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