Aussie dollar loses ground despite positive economic data

VaselineSeptember 2, 2024

0 5 minutes read

Aussie dollar loses ground despite positive economic data

Australian dollar depreciates despite positive economic data on Monday.
Australian building permits rose 10.4% month-on-month in July, marking the strongest increase since May 2023.
The US dollar could depreciate on rising odds of a 25 basis point rate cut by the Fed.

The Australian dollar (AUD) extends losses against the US dollar (USD) after the release of key economic data on Monday. However, improved risk sentiment could limit the risk-sensitive AUD’s downside as dovish expectations around the US Federal Reserve (Fed) continued to rise.

Australian building permits rose 10.4% month-on-month in July, rebounding sharply from a 6.5% decline in June, marking the strongest increase since May 2023. On an annual basis, the growth rate of reached 14.3%, a significant rebound from the previous decline of 3.7%. In addition, China’s Caixin Manufacturing PMI rose to 50.4 in August from 49.8 in July, which is particularly noteworthy given China’s close trade relationship with Australia.

The US dollar is receiving downward pressure on rising expectations of a 25 basis point rate cut by the Fed in September. However, the Greenback found support from the US Personal Consumer Expenditure (PCE) data released on Friday.

Traders may now focus on upcoming US employment figures, including non-farm payrolls (NFP) for August, to gain more insight into the potential size and pace of Fed rate cuts.

Daily Digest Market Movers: Aussie drops on key economic numbers

The US Bureau of Economic Analysis reported on Friday that the Personal Consumption Expenditure (PCE) Price Index rose 2.5% year-on-year in July, matching the previous reading of 2.5% but below the 2. 6% Meanwhile, core PCE, which excludes volatile food and energy prices, rose 2.6% year-on-year in July, in line with the previous figure of 2.6% but slightly below the consensus forecast of 2, 7%
US Gross Domestic Product (GDP) grew at an annualized rate of 3.0% in the second quarter, beating both the forecast and the previous growth rate of 2.8%. In addition, initial jobless claims showed that the number of people filing for unemployment benefits fell to 231,000 in the week ended Aug. 23, down from 233,000 previously and slightly below the 232,000 expected.
Australia’s private equity spending unexpectedly fell 2.2% in the second quarter, reversing from an upwardly revised 1.9% expansion in the previous period and missing market expectations for a 1.0 increase %. This marks the first contraction in new capital spending since the third quarter of 2023.
Australia’s monthly consumer price index (CPI) rose 3.5% from a year earlier in July, down from June’s 3.8% but slightly above the market consensus of 3.4%. Despite the slight drop, it marks the lowest CPI figure since March.
Atlanta Federal Reserve President Raphael Bostic, a prominent FOMC hawk, indicated last week that it might be “time to move” on rate cuts because of further declines in inflation and a higher-than-expected unemployment rate. FXStreet’s FedTracker, which rates the tone of Fed officials’ speeches on a scale of 0 to 10 using a custom AI model, rated Kashkari’s words as neutral with a score of 5.6.

Technical analysis: Australian dollar falls to near 0.6750

The Australian dollar is trading around 0.6760 for the month. Looking at the daily chart, the AUD/USD pair is positioned below an uptrend line, suggesting a potential weakening of the bullish trend. However, the 14-day Relative Strength Index (RSI) remains above the 50 level, which continues to support the overall bullish trend.

In terms of resistance, AUD/USD may test the immediate barrier at the seven-month high of 0.6798 followed by the uptrend line around the 0.6860 level. A break above this level could reinforce the ongoing uptrend and lead the pair to navigate the area around the psychological level of 0.6900.

On the downside, AUD/USD may find support around the 14-day EMA at 0.6732. A break below this EMA could undermine the uptrend and increase downward pressure, potentially leading the pair towards the 0.6575 retracement level, with a further decline targeting the lower support at 0.6470.

AUD/USD: Daily chart

Australian Dollar PRICE Today

The table below shows the percentage change of the Australian Dollar (AUD) against the major listed currencies today. The Australian dollar was the weakest against the Japanese yen.

	USD	EURO	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.03%	0.00%	-0.06%	0.08%	0.03%	0.11%	0.10%
EURO	0.03%		0.06%	-0.03%	0.09%	0.06%	0.13%	0.12%
GBP	-0.01%	-0.06%		-0.12%	0.02%	-0.02%	0.10%	0.04%
JPY	0.06%	0.03%	0.12%		0.09%	0.12%	0.29%	0.09%
CAD	-0.08%	-0.09%	-0.02%	-0.09%		-0.01%	0.01%	0.02%
AUD	-0.03%	-0.06%	0.02%	-0.12%	0.01%		0.06%	0.05%
NZD	-0.11%	-0.13%	-0.10%	-0.29%	-0.01%	-0.06%		-0.01%
CHF	-0.10%	-0.12%	-0.04%	-0.09%	-0.02%	-0.05%	0.01%

The heatmap shows the percentage changes of major currencies against each other. The base currency is chosen from the left column, while the quoted currency is chosen from the top row. For example, if you choose the Australian dollar in the left column and move along the horizontal line to the US dollar, the percentage change shown in the box will be AUD (base)/USD (quote).

Australian Dollar FAQ

One of the most important 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 factor is the price of its biggest export, iron ore. The health of the Chinese economy, its largest trading partner, is a factor, as is Australia’s inflation, growth rate and trade. Balance. Market sentiment – whether investors are taking riskier assets (risk-on) or seeking safe havens (risk-off) – is also a factor, with risk positive for the AUD.

The Reserve Bank of Australia (RBA) influences the Australian dollar (AUD) by setting the level of interest rates at which Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main aim 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 is relatively low. The RBA can also use quantitative easing and tightening to influence lending conditions, the former AUD-negative and the latter AUD-positive.

China is Australia’s largest trading partner, so the health of the Chinese economy has a major influence on the value of the Australian dollar (AUD). When the Chinese economy is doing well, it buys more raw materials, goods and services from Australia, increasing 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. Therefore, positive or negative surprises in China’s growth data often have a direct impact on the Australian dollar and its pairs.

Iron ore is Australia’s biggest export, accounting for $118 billion a year, according to 2021 data, with China as the main destination. Therefore, the price of iron ore can be a driver of the Australian dollar. Generally, if the price of iron ore rises, so does the AUD, as aggregate demand for the currency rises. The opposite is true if the price of iron ore falls. Higher iron ore prices also tend to result in a higher likelihood of a positive trade balance for Australia, which is also positive for the AUD.

The balance of trade, 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 only gain in value from the excess demand created by foreign buyers wanting to buy its exports over what it spends on buying its imports. A positive net trade balance therefore strengthens the AUD, with the opposite effect if the trade balance is negative.

VaselineSeptember 2, 2024

0 5 minutes read