Australian Dollar extends gains due to solid economic data
- The Australian Dollar gains ground due to the release of solid economic data on Wednesday.
- Australia's Retail Sales rose by 0.6% MoM in May, surpassing both the anticipated 0.2% rise and the prior 0.1% gain.
- Fed Chair Jerome Powell wants to see further evidence before cutting interest rates.
The Australian Dollar (AUD) continues to gain ground for the second successive day on Wednesday. This upside is attributed to the Judo Bank's Australia Purchasing Managers Index (PMI) figures, which showed a slight improvement in June.
Australia's Retail Sales, a measure of the country's consumer spending, increased by 0.6% MoM in May, up from the previous month's 0.1% rise. This figure exceeded market expectations of a 0.2% increase.
The AUD/USD pair is also supported by the weaker US Dollar (USD), which is likely due to the decline in US Treasury yields. Traders will be looking for further direction from the US ADP Employment Change, ISM Services PMI for June, and the FOMC Minutes, all of which are scheduled for release later on Wednesday.
Daily Digest Market Movers: Australian Dollar appreciates due to higher PMI
- Judo Bank's Australia Services PMI increased to 51.2 MoM, up from the previous month's 51.0, surpassing the forecasted drop to 50.6. Meanwhile, the Composite PMI rose to 50.7 MoM, compared to 50.6 in the previous month.
- China's Services Purchasing Managers' Index (PMI) fell from 54.0 in May to 51.2 in June, according to the latest data released by Caixin on Wednesday. The market forecast was for a 53.4 figure in the reported period.
- The Federal Reserve (Fed) Chair Jerome Powell turned slightly dovish on Tuesday. Powell said that the Fed is getting back on the disinflationary path. However, Powell wants to see further evidence before cutting interest rates as the US economy and the labor market remain strong, per Reuters.
- The Reserve Bank of Australia’s (RBA) June monetary policy meeting minutes, released on Tuesday, indicated that the "board judged the case for holding rates steady stronger than hiking." The board emphasized the need to remain vigilant regarding upside risks to inflation, noting that data suggested an upside risk for May's Consumer Price Index (CPI).
- The Reserve Bank of Australia's (RBA) Index of Commodity Prices fell by 4.1% YoY in June, following an upwardly revised 6.0% decline in the previous month. The June decline marks the mildest deflation in sixteen consecutive months.
- The Melbourne Institute's Monthly Inflation Gauge has heightened concerns that the RBA might raise interest rates again in August. The gauge increased by 0.3% in June, maintaining the same pace as in May, marking the fourth consecutive month of rises and remaining at the highest since January.
- On Tuesday, Chinese state media outlet Securities Daily quoted the chief economist at CITIC Securities, suggesting that the People's Bank of China (PBOC) might consider measures like reducing the reserve requirement ratio (RRR) to inject liquidity into the market. Any potential economic shift in China could notably influence the Australian Dollar (AUD), given the close trade ties between the two nations.
Technical Analysis: Australian Dollar holds ground above 0.6650
The Australian Dollar trades around 0.6670 on Wednesday. The analysis of the daily chart shows a symmetrical triangle, which represents a pause in the trend as traders reach an equilibrium. However, once the price breaks out decisively from the triangle, it would signal a clear directional trend. However, the 14-day Relative Strength Index (RSI) is slightly above 50 level, indicating a bullish bias.
The AUD/USD pair is likely to test the upper boundary of the symmetrical triangle at around 0.6680, followed by the psychological level of 0.6700. Additional resistance is located at 0.6714, the highest level since January.
On the downside, the AUD/USD pair could find the key support around the lower boundary of the symmetrical triangle at 0.6630, followed by the 50-day Exponential Moving Average (EMA) at 0.6625.
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 Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.02% | 0.00% | 0.08% | 0.03% | -0.10% | -0.02% | 0.05% | |
| EUR | -0.02% | -0.01% | 0.09% | 0.00% | -0.13% | -0.02% | 0.02% | |
| GBP | -0.01% | 0.01% | 0.10% | 0.02% | -0.11% | 0.00% | 0.02% | |
| JPY | -0.08% | -0.09% | -0.10% | -0.07% | -0.20% | -0.11% | -0.07% | |
| CAD | -0.03% | -0.01% | -0.02% | 0.07% | -0.13% | -0.03% | 0.00% | |
| AUD | 0.10% | 0.13% | 0.11% | 0.20% | 0.13% | 0.10% | 0.13% | |
| NZD | 0.02% | 0.02% | 0.00% | 0.11% | 0.03% | -0.10% | 0.03% | |
| CHF | -0.05% | -0.02% | -0.02% | 0.07% | -0.00% | -0.13% | -0.03% |
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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (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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