Australian Dollar declines due to renewed US Dollar buying
- AUD/USD plunges due to intensified US Dollar buying, reaching fresh lows near 0.6630.
- Renewed selling pressure pushes AUD/USD beneath the key 200-day SMA.
- Higher US Treasury yields and economic divergences favor the USD.
The AUD/USD pair declined by 0.97% to 0.6620 in Wednesday's session, driven by intensified US Dollar buying and concerns over China's stimulus measures. Renewed selling pressure pushed AUD/USD beneath the key 200-day SMA, highlighting the pair's vulnerability in the current market environment.
Financial markets now anticipate 50% odds of a mere 0.25% reduction in interest rates in 2024 by the RBA, which might benefit the Aussie and limit its downside.
Daily digest market movers: Australian Dollar dips amid robust US Dollar demand, lower Chinese stimulus hopes
- AUD/USD weakened amidst the robust US Dollar and waning hopes for Chinese stimulus measures.
- The International Monetary Fund (IMF) updated the growth forecast of the US economy, which benefited the USD.
- The Greenback also is gaining due to higher US Treasury yields.
- The US will report S&P PMIs data on Thursday, which might also shake the pair by the end of the week.
AUD/USD technical outlook: Bearish momentum intact despite ranging sessions
The Relative Strength Index (RSI), at 33, is near the oversold area with a sharply declining slope, suggesting that selling pressure is rising. The Moving Average Convergence Divergence (MACD) histogram is red and rising, further confirming the bearish outlook.Volume remains steady, but today's sharp 1% decline suggests increased selling interest. Support levels lie at 0.6650, 0.6600 and 0.6550, while resistance stands at 0.6700, 0.6750 and 0.6800. The overall bearish trend remains intact, indicating continued downward momentum in the short term.
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.