- Australian Dollar gains ground after RBA interest rate decision.
- Australia’s Retail Sales improved with a 0.3% rise in the fourth quarter against 0.2% prior.
- RBA maintained the OCR at 4.35% at February’s meeting, as expected.
- RBA Governor Michele Bullock cited a 2.8% inflation forecast for the year 2025.
- US Dollar surged as ISM Services PMI rose to 53.4, surpassing the expected figure of 52.0.
The Australian Dollar (AUD) retraces its recent losses on Tuesday. The AUD gained ground against the US Dollar (USD) as the Reserve Bank of Australia (RBA) maintained its Official Cash Rate (OCR) at 4.35% at February’s meeting, as expected. However, the AUD/USD pair weakened due to hawkish comments from Federal Reserve (Fed) Chair Jerome Powell, coupled with the reduced commodity prices.
Australian Bureau of Statistics released Retail Sales (QoQ) data on Tuesday, indicating an improvement with a 0.3% rise in the fourth quarter compared to the previous growth of 0.2%. The Australian economy is going through a cost-of-living crisis, there appears to be limited room for RBA policymakers to raise interest rates further. Instead, the focal point now shifts to when the central bank might commence reducing interest rates. Investors will closely monitor RBA Governor Michele Bullock’s upcoming speech on the monetary policy outlook, seeking additional insights into the central bank’s stance and potential future actions.
RBA Governor Michele Bullock stated, in a post-interest rate decision press conference, that the Reserve Bank of Australia is not ruling anything in or out regarding policy decisions. She emphasized that the bank perceives risks as balanced and is actively seeking data that confirms a return of inflation to the target level. Governor Bullock expressed the view that the central bank might be on a potentially narrow path to achieving the goal of bringing inflation back to the target. Additionally, she cited a 2.8% inflation forecast for the year 2025.
The US Dollar Index (DXY) experienced a notable surge following the Federal Reserve’s hawkish stance, driven by robust ISM Services data for January. The ISM Services PMI exceeded expectations, registering at 53.4, surpassing both the consensus figure of 52.0 and the previous month’s 50.5. Additionally, the ISM Services Employment Index saw an improvement, rising to 50.5 from the previous reading of 43.8.
Federal Reserve Chairman Jerome Powell contributed to the strengthening of the US Dollar by dampening expectations of a rate cut. Powell underscored the importance of monitoring inflation’s sustained movement toward the 2% core target. This stance led to an increase in US Treasury yields, putting downward pressure on the AUD/USD pair.
Daily Digest Market Movers: Australian Dollar weakens on Fed’s hawkish stance
- Australian Trade Balance (MoM) for January was reduced to the figure of 10,959M compared to the revised figure of 11,764M in December.
- Australia’s Judo Bank Composite Purchasing Managers Index (PMI) improved to 49 in January from 48.1 prior. The Services PMI saw an improvement, rising to 49.1 from the previous figure of 47.9.
- Aussie TD Securities Inflation (YoY) grew by 4.6%, against the previous growth of 5.2%.
- Australian TD Securities Inflation (MoM) grew by 0.3% in January, lower than the December’s rise of 1.0%.
- Chinese Caixin Services PMI reduced to 52.7 in January from the previous reading of 52.9.
- US ISM Services Prices Paid rose to the reading of 64.0 in January, from December’s reading of 56.7.
- The US Services New Orders Index for January improved to 55.0 from the previous figure of 52.8.
- US S&P Global Composite PMI came in at 52.0 in January, slightly lower than the 52.3 prior.
Technical Analysis: Australian Dollar could test the psychological level of 0.6500
The Australian Dollar traded around 0.6490 on Tuesday, positioned below the resistance level of 0.6500. A potential breach above this level could serve as a catalyst for the AUD/USD pair to test the resistance zone near the major level at 0.6550. Subsequently, further upward movement may lead to encounters with the 23.6% Fibonacci retracement level at 0.6563, ultimately reaching the 21-day Exponential Moving Average (EMA) at 0.6587. On the downside, immediate support is anticipated at the psychological level of 0.6450 following another psychological support level at 0.6400.
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 US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.15% | -0.20% | -0.25% | -0.53% | -0.12% | -0.36% | -0.15% | |
| EUR | 0.17% | -0.04% | -0.09% | -0.38% | 0.05% | -0.20% | 0.02% | |
| GBP | 0.20% | 0.04% | -0.05% | -0.34% | 0.07% | -0.16% | 0.04% | |
| CAD | 0.23% | 0.08% | 0.05% | -0.28% | 0.13% | -0.11% | 0.09% | |
| AUD | 0.53% | 0.37% | 0.33% | 0.28% | 0.41% | 0.17% | 0.38% | |
| JPY | 0.12% | -0.02% | -0.07% | -0.13% | -0.43% | -0.23% | -0.03% | |
| NZD | 0.35% | 0.19% | 0.15% | 0.10% | -0.19% | 0.23% | 0.20% | |
| CHF | 0.15% | -0.01% | -0.05% | -0.09% | -0.38% | 0.04% | -0.20% |
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).
Australian Dollar FAQs
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.
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.
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.
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.
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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