Australian Dollar rises as weak USD and strong data support Aussie
- The Aussie Dollar benefits from a weaker US Dollar and strong employment data.
- China's economic slowdown weighs on risk sentiment and limits AUD gains.
- Soft housing data also weighed on the USD on Friday.
The AUD/USD pair extended its recovery momentum on Friday and rose mildly to 0.67055, with a positive risk tone and hawkish Reserve Bank of Australia (RBA) expectations due to strong local data underpinning the Aussie. A consolidating US Dollar also helped the pair to rise.
Due to strong employment data release this week, markets might start betting on a more hawkish RBA. As for now, the consensus indicated a single 25 bps cut in 2024.
Daily digest market movers: Australian Dollar rises amid risk-on tone and hawkish RBA expectations
- AUD strengthens due to positive domestic employment data, diminishing expectations for RBA rate cuts.
- Risk-on sentiment in global equity markets undermines USD safe-haven demand.
- This week, employment increased by 64.1K, showing slightly higher growth than the strong results seen in August with most gains in full-time jobs.
- The unemployment rate was adjusted downward to 4.1%, staying close to historic lows and significantly below the decade’s average.
- In the meantime, investors continue to place bets on a 25 bps cut by the RBA by years-nd. However, if data continue to come in strong, those odds might fade.
AUD/USD technical outlook: Pair recovers, might have hit bottom
The Relative Strength Index (RSI) has recently risen upwards in the negative area, suggesting that buying pressure is recovering. Meanwhile, the Moving Average Convergence Divergence (MACD) is flat, implying that selling pressure is currently flat. Overall, the AUD/USD pair is technically mixed but with signs of a recovery.
For the next session, the buyer’s task is to defend the 0.6700 area and build support around it.
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.