The Australian Dollar appears to be in a resurgence phase due to stabilizing US Dollar conditions and the upcoming address from Federal Reserve Chairman Jerome Powell. This resurgence is being attributed partly to advancements in the ASX 200 Index, a slight rise in GDP, and a boost in commodities like iron ore which significantly contributes to Australia’s GDP. Moreover, the positive deficit in the Australian trade balance is also a contributing factor, attributed in part to China’s consistent demand for iron ore.
The upcoming address by Jerome Powell has traders eagerly awaiting potential changes in US monetary policies, which could critically influence the direction of the Australian Dollar. It’s important to note, however, that while the Australian Dollar shows promising growth, it remains subject to global market fluctuations and domestic economic shifts.
Despite unspectacular GDP figures, the Commonwealth Bank of Australia maintains a forecast of 75 bps rate cuts by 2024. The US Dollar, on the other hand, shows strength due to higher US Treasury yields, despite a slight dip of the US ISM Services PMI in February. This strength in the US Dollar comes from increased US Treasury yields, despite the Services PMI falling slightly below the expected February prediction.
In spite of unfavourable GDP figures, the Australian Dollar managed to withstand, demonstrating resilience and rebounding in intraday activity. However, the continual unpredictability in global markets, along with trade tensions, caused the S&P/ASX 200 Index to weaken and mining stocks to plummet. Despite these unfavourable conditions, the Australian Dollar managed to hold its own.
The Reserve Bank of Australia (RBA) continues to monitor the changing economic landscape closely, prepared to identify signs of a downturn and adjust inflation to the target rate. Economists suggest that the RBA might delay planned rate cuts to boost the Australian Dollar in light of potential signs of an approaching recession.
The US Dollar seems to be halting its three-day slump, bolstered by a resurgence in US Treasury yields ahead of Powell’s congressional testimony. In contrast, the Australian Current Account Balance exceeded both previous and expected figures, rising to 11.8 billion in Q4 2023.
On the other hand, the ANZ-Roy Morgan Australian Consumer Confidence index hit its lowest annual level at 81.0. Such a climate of economic uncertainty has resulted in less spending and overall reduced economic activity.
Potential recovery in 2024 activity is being discussed as Judo Bank Services PMI hit a peak of 53.1 in February, exceeding the expansion benchmark. Former New York Fed economist Steven Friedman speculates that the Federal Reserve will be cautious about interest rate cuts this year, given robust growth and fluctuating inflation.
