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  • Writer's pictureChris Broadfoot

Currency Update: Why the Australian Dollar is on the Rise.

The Australian Dollar has experienced a positive week, buoyed by surging global commodity prices and increasing optimism surrounding China's economic rebound. As demand for commodities rises and China's domestic consumption shows signs of revival, investors have shown a renewed interest in the Australian Dollar, driving its value higher.

The AUD has also taken advantage of some worse-than-expected US data, along with comments from the US Fed that their interest rate plan is still on track, and the market has negatively taken this.

US Dollar Reacts to ISM Data

On Wednesday, the US Services ISM data took centre stage, exerting its influence on the US dollar and gold prices. The report revealed a continued expansion in business activity for March, albeit at a slower pace than previous months. Notably, the headline ISM Services PMI reading fell short of expectations, signalling a moderation in growth. As cost pressures eased, reflected in the decline of the Prices Index, market dynamics shifted.

Key takeaways from the Institute for Supply Management report highlight various factors contributing to the composite index decline, including slower new orders growth, faster supplier deliveries, and a contraction in employment. Despite ongoing improvements in logistics and supply chain, challenges persist in backfilling positions and controlling labor expenses.

Furthermore, Federal Reserve Chairman Powell's remarks at the Stanford Business, Government, and Society Forum added to the greenback's downward trajectory. His stance on inflation readings signalled continuity in monetary policy, aligning with the expected easing measures in 2024.

Looking ahead, the market focus turns to tonight's unemployment rate from the US jobless claims data and Friday’s nonfarm payrolls report, crucial indicators shaping future market sentiment.

The Australian Dollar to US Dollar exchange rate.

Japanese Yen: Navigating Uncertainty

Meanwhile, the Japanese Yen faced its own set of challenges, trading slightly weaker against the Australian Dollar. However, market sentiment remains cautious, particularly around the AUD/JPY pair touching 100.39 overnight, which is the highest in 10 years!

Concerns arise over potential intervention by the Bank of Japan to address currency weakness, amidst Finance Minister Suzuki's vigilance on market trends.

The Yen's persistent low-yield status, coupled with evolving AU and US interest-rate dynamics, adds to the complexity of the currency's outlook. Despite recent shifts in monetary policy, the Yen continues to grapple with fundamental pressures, necessitating strategic intervention to mitigate further depreciation.

Against the US Dollar, the USD/JPY hovers near critical levels, anticipation builds around upcoming market cues, with the US nonfarm payroll release poised to shape future trading dynamics. An unexpected upside surprise could trigger a significant Dollar rally, prompting a response from the Bank of Japan.

For any particular currency updates, please reach out to me directly.

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