Australian Dollar remains subdued despite a stronger monthly inflation
- The Australian Dollar holds losses following stronger-than-expected domestic monthly inflation released on Wednesday.
- Australia's monthly Consumer Price Index increased by 2.3% YoY in November, the highest level recorded since August.
- The US Dollar appreciated as the 10-year yield on US Treasury bonds rose by over 1% on Tuesday.
The Australian Dollar (AUD) remains subdued for the second consecutive session against the US Dollar (USD), with the AUD/USD pair holding losses despite stronger-than-expected monthly inflation data released on Wednesday. Markets are currently pricing in a 55% probability that the Reserve Bank of Australia (RBA) will lower its cash rate by 25 basis points to 4.35% in February, with a full quarter-point cut expected by April.
Australia's monthly Consumer Price Index (CPI) rose 2.3% year-over-year in November, surpassing the market forecast of 2.2% and marking an increase from the 2.1% rise seen in the previous two months. This is the highest reading since August. However, the figure remains within the RBA’s target range of 2–3% for the fourth consecutive month, aided by the ongoing impact of the Energy Bill Relief Fund rebate.
Australian Bureau of Statistics reported on Tuesday that permits for new construction projects in Australia dropped by 3.6% month-on-month to 14,998 units in November 2024, falling short of market expectations for a 1.0% decline. This downturn followed an upwardly revised 5.2% increase in October, marking the first decrease in three months.
Australian Dollar declines due to hawkish shift in Fed’s rate trajectory
- The US Dollar Index (DXY), which measures the US Dollar’s (USD) performance against six major currencies, holds its position above 108.50 at the time of writing.
- The US Dollar strengthened as the 10-year yield on US Treasury bonds rose by over 1% in the previous session, currently standing at 4.67%. This spike is a stark reminder of the shifting investor sentiment regarding the Federal Reserve's interest rate trajectory.
- The US ISM Services PMI increased to 54.1 in November, up from 52.1, exceeding the market expectation of 53.3. The Prices Paid Index, which reflects inflation, rose significantly to 64.4 from 58.2, while the Employment Index dipped slightly to 51.4 from 51.5.
- The US ISM Manufacturing PMI improved to 49.3 in December, from 48.4 in November. This reading came in better than the market expectation of 48.4.
- According to Bloomberg, Federal Reserve Bank of Atlanta President Raphael Bostic stated on Tuesday that Fed officials should exercise caution with policy decisions due to uneven progress in reducing inflation. Bostic emphasized the need to lean toward keeping interest rates elevated to ensure the achievement of price stability goals.
- Richmond Fed President Thomas Barkin highlighted on Friday that the benchmark policy rate should remain restrictive until there is greater confidence that inflation will return to the 2% target.
- Fed Governor Adriana Kugler and San Francisco Fed President Mary Daly underscored the challenging balancing act facing US central bankers as they aim to slow the pace of monetary easing this year.
- Traders are cautious regarding President-elect Trump’s economic policies, fearing that tariffs could increase the cost of living. These concerns were compounded by the Federal Open Market Committee’s (FOMC) recent projections, which indicated fewer rate cuts in 2025, reflecting caution amid persistent inflationary pressures.
Technical Analysis: Australian Dollar moves below nine-day EMA toward 0.6200
AUD/USD trades near 0.6210 on Wednesday, maintaining its bearish outlook as it remains confined within a descending channel on the daily chart. The 14-day Relative Strength Index (RSI) retreats toward the 30 level, signaling a potential intensification of bearish momentum.
On the downside, the AUD/USD pair may navigate the region around the lower boundary of the descending channel, at the 0.5990 level.
The AUD/USD pair may test the immediate resistance around the nine-day Exponential Moving Average (EMA) at 0.6224, followed by the 14-day EMA at 0.6239. Further barrier appears around the upper boundary of the descending channel, at 0.6270 level.
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 weakest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -0.05% | -0.01% | 0.09% | -0.05% | 0.21% | 0.09% | -0.01% | |
| EUR | 0.05% | 0.05% | 0.13% | 0.00% | 0.26% | 0.15% | 0.04% | |
| GBP | 0.00% | -0.05% | 0.12% | -0.05% | 0.21% | 0.10% | -0.00% | |
| JPY | -0.09% | -0.13% | -0.12% | -0.15% | 0.11% | -0.01% | -0.11% | |
| CAD | 0.05% | -0.00% | 0.05% | 0.15% | 0.26% | 0.15% | 0.04% | |
| AUD | -0.21% | -0.26% | -0.21% | -0.11% | -0.26% | -0.12% | -0.22% | |
| NZD | -0.09% | -0.15% | -0.10% | 0.01% | -0.15% | 0.12% | -0.10% | |
| CHF | 0.01% | -0.04% | 0.00% | 0.11% | -0.04% | 0.22% | 0.10% |
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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