Australian Dollar holds ground as traders adopt caution ahead of Fed policy
- The Australian Dollar remained steady after domestic consumer confidence showed signs of strain.
- Australia’s Westpac Consumer Confidence fell 2% in December, against November’s 5.3% increase.
- The US Dollar struggles as traders are bracing for an expected 25 basis point rate cut from the US Fed.
The Australian Dollar (AUD) trades flat following domestic consumer confidence indicating signs of strain, with December data showing a decline as consumers grow increasingly pessimistic about the economic outlook. Moreover, traders are anticipating a potential interest rate cut by the US Federal Reserve (Fed) on Wednesday, with attention largely focused on the Fed's projections for 2025.
Westpac Consumer Confidence in Australia fell 2% to 92.8 points in December, reversing two months of positive momentum. The index increased 5.3% in November. Traders will likely observe US Retail Sales data scheduled to be released later in the North American session.
The US Dollar (USD) remains subdued for the third successive session amid market caution ahead of the Fed decision. On Monday, the preliminary S&P Global Composite Purchasing Managers Index (PMI) rose to 56.6 in December, from 54.9 prior. Meanwhile, the Services PMI improved to 58.5 from 56.1. The Manufacturing PMI declined to 48.3 in December, from the previous 49.7 reading.
According to the CME FedWatch tool, markets are now almost fully pricing in a quarter basis point cut at the Fed's December meeting. Investors will closely monitor Fed Chair Jerome Powell's press conference and Summary of Economic Projections (dot-plot) after the meeting.
Australian Dollar remains flat due to market caution ahead of the Fed's decision
- Chinese authorities, led by President Xi Jinping, have pledged to raise the fiscal deficit target next year, shifting policy focus to consumption to boost the economy amid looming 10% US tariffs threatening exports. The lack of concrete details on fiscal support has put downward pressure on the AUD, given China's status as Australia's largest trading partner.
- China’s Retail Sales (YoY) rose 3.0% in November, against its expected 4.6% and previous 4.8% readings. Meanwhile, annual Industrial Production increased by 5.4%, exceeding the market consensus of a 5.3% rise.
- The National Bureau of Statistics (NBS) in China shared its economic outlook during a press conference on Monday. It stated that the economy remained generally stable in November, with increasing signs of positive changes. The recovery trend in consumption remains intact, and the bureau emphasized plans to implement additional policies aimed at expanding domestic demand.
- Traders are increasing their bets that the Reserve Bank of Australia (RBA) will cut interest rates sooner and more significantly than initially expected. However, future decisions will be data-driven, with evolving risk assessments guiding the RBA's approach.
- The preliminary Australia's Judo Bank Manufacturing Purchasing Managers Index (PMI) declined to 48.2 in December from 49.4 in November. Meanwhile, the Services PMI eased to 50.4 in December from the previous reading of 50.5. The Composite PMI dropped to 49.9 in December versus 50.2 prior.
- Beijing has already begun retaliation against Trump trade sanctions, launching a probe into Nvidia, threatening to blacklist a US apparel company, blocking the export of critical minerals to the United States, and tightening the supply chain for drones.
- The RBA kept the Official Cash Rate (OCR) unchanged at 4.35% in its final policy meeting in December. RBA Governor Michele Bullock highlighted that while upside inflation risks have eased, they persist and require ongoing vigilance. The RBA will closely monitor all economic data, including employment figures, to guide future policy decisions.
Technical Analysis: Australian Dollar maintains position above 0.6350, yearly lows
The AUD/USD pair continues to maintain its position near 0.6370 on Tuesday. Analysis of a daily chart suggests a bearish bias prevails as the pair is confined within a descending channel pattern. Additionally, the 14-day Relative Strength Index (RSI) hovers above the 30 level, indicating sustained bearish momentum is active.
The AUD/USD pair continues to face initial support at a yearly low of 0.6348, last seen on August 5. A break below this level could put downward pressure on the AUD/USD pair to approach the descending channel’s lower boundary around the 0.6170 level.
Regarding its resistance, the AUD/USD pair tests the nine-day Exponential Moving Average (EMA) at 0.6390, followed by the 14-day EMA at 0.6412, which is aligned with the descending channel’s upper boundary. A decisive breakout above this channel could drive the pair toward the eight-week high of 0.6687.
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 | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.12% | -0.05% | -0.05% | -0.06% | -0.08% | 0.00% | -0.12% | |
| EUR | 0.12% | 0.07% | 0.06% | 0.06% | 0.03% | 0.10% | -0.00% | |
| GBP | 0.05% | -0.07% | 0.02% | -0.01% | -0.03% | 0.04% | -0.06% | |
| JPY | 0.05% | -0.06% | -0.02% | 0.01% | -0.01% | 0.05% | -0.03% | |
| CAD | 0.06% | -0.06% | 0.00% | -0.01% | -0.02% | 0.05% | -0.04% | |
| AUD | 0.08% | -0.03% | 0.03% | 0.00% | 0.02% | 0.07% | -0.04% | |
| NZD | -0.01% | -0.10% | -0.04% | -0.05% | -0.05% | -0.07% | -0.09% | |
| CHF | 0.12% | 0.00% | 0.06% | 0.03% | 0.04% | 0.04% | 0.09% |
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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