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Australian Dollar edges higher despite the US Dollar gaining ground.
Australian currency declined by 0.06% against the Greenback in 2023.
China’s Caixin Manufacturing PMI improved to 50.8 in December from 50.7 prior.
Recent US data led the market bias toward the Fed’s dovish stance in early 2024.
The Australian Dollar (AUD) lingers near 0.6820 on Tuesday after a rebound on Friday. The AUD/USD pair experienced a 0.06% decline in 2023, extending its three-year losing streak. However, the pair saw gains in the past two months, attributed to a weaker US Dollar (USD) as there has been a slight dip in United States (US) inflation recently. The easing in US Inflation is leading to market speculation on the US Federal Reserve (Fed) to cut interest rates in early 2024.
Australia’s Dollar demonstrated resilience, fueled by an enhanced risk appetite and robust inflation and housing prices. The recent meeting minutes underscored the Reserve Bank of Australia’s (RBA) commitment to scrutinizing additional data to gauge risk balance before deciding on future interest rates. The anticipation that the RBA will probably refrain from a rate cut in the upcoming February policy meeting adds support to maintaining the strength of the Australian Dollar (AUD).
China’s Caixin Manufacturing Purchasing Managers Index (PMI) displayed improvement in December, registering a reading of 50.8, surpassing both the market consensus of 50.4 and the previous reading of 50.7. This positive surprise in manufacturing data could potentially bolster the Aussie Dollar (AUD), given the significant trade ties between China and Australia.
The US Dollar Index (DXY) continues to gain ground, but it may encounter challenges again as market participants observed a dip in recent US labor data, Core PCE Inflation, and GDP Annualized. The recent release of the Chicago Purchasing Managers Index by ISM-Chicago on Friday indicated an easing of business conditions across Illinois, Indiana, and Michigan in December.
These indicators validate the notion that the US economy is slowing down in the fourth quarter, signaling a potential soft landing. This reinforces the argument for Fed rate cuts in 2024 and exerts downward pressure on the USD.
Australia’s Judo Bank Composite and Services PMI data for December are set to be released on Thursday. On the US docket, Wednesday will be marked by the scrutiny of ISM Manufacturing PMI figures and the Meeting Minutes from the Federal Open Market Committee (FOMC).
Judo Bank Manufacturing PMI eased to 47.6 in December from the previous reading of 47.8.
China’s NBS Manufacturing PMI for December reduced to the reading of 49.0 from the previous 49.4 figure. The market expectation was an increase to 49.5. While NBS Non-Manufacturing PMI improved to 50.4 from the 50.2 prior but fell short of the 50.5 expected.
The Chicago Purchasing Managers Index reduced to 46.9 in December from the previous 55.8.
The Australian Dollar hovers around 0.6810 on Tuesday. The prevailing bullish sentiment could influence the AUD/USD pair to surpass again the major resistance level at 0.6850 following the psychological level of 0.6900. On the downside, the AUD/USD pair could find the key support at the psychological level at 0.6800 aligned with the nine-day Exponential Moving Average (EMA) at 0.6799. A breach below this crucial support zone could potentially lead the AUD/USD pair to navigate the major support at 0.6750 followed by the 23.6% Fibonacci retracement level at 0.6725.
Australian Dollar price in the last 7 days
The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies in the last 7 days. Australian Dollar was the strongest against the US Dollar.
USD
EUR
GBP
CAD
AUD
JPY
NZD
CHF
USD
-0.10%
-0.24%
-0.07%
-0.44%
-0.60%
-0.20%
-1.41%
EUR
0.08%
-0.14%
0.03%
-0.35%
-0.51%
-0.08%
-1.32%
GBP
0.22%
0.12%
0.17%
-0.21%
-0.37%
0.05%
-1.17%
CAD
0.07%
-0.02%
-0.16%
-0.37%
-0.55%
-0.10%
-1.35%
AUD
0.44%
0.34%
0.20%
0.37%
-0.15%
0.26%
-0.97%
JPY
0.61%
0.53%
0.38%
0.53%
0.17%
0.46%
-0.81%
NZD
0.18%
0.08%
-0.05%
0.11%
-0.26%
-0.42%
-1.23%
CHF
1.38%
1.30%
1.16%
1.32%
0.95%
0.79%
1.22%
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).
Risk sentiment FAQs
What do the terms”risk-on” and “risk-off” mean when referring to sentiment in financial markets?
In the world of financial jargon the two widely used terms “risk-on” and “risk off” refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
What are the key assets to track to understand risk sentiment dynamics?
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
Which currencies strengthen when sentiment is “risk-on”?
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
Which currencies strengthen when sentiment is “risk-off”?
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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