AUD/USD bounces up as the Dollar rally loses steam and approaches 0.6450 resistance area
- The Aussie Dollar bounced up from lows and approaches resistance at 0.6450
- The US Dollar is giving away gains as the optimism following the ban on Trump’s tariffs eases.
- On the macroeconomic front, US GDP and Jobless Claims will gather the focus today.
The Aussie Dollar bounced up right above the 0.6400 psychological level on Thursday and is trading 0.30% higher on the day, with a retest of the 0.6450 resistance area on the cards, as the US Dollar rally loses steam.
The Greenback appreciated across the board during late Wednesday and Thursday’s Asian session, boosted by a US court ruling against Trump’s trade tariffs, before pulling back during the European session.
In Australia, an unexpected decline in Private Capital Expenditure, which fell 0.1% in the first quarter, against expectations of a 0.5% increase, offset the positive impact of the sticky inflation numbers seen on Wednesday and added negative pressure on the AUD.
Enthusiasm about the tariff ban fades
After the initial enthusiasm, Investors might have come to terms with the fact that this will be an extended process. The US Government immediately appealed the court's sentence, which suggests that Trump’s erratic trade policy is far from over.
The focus today is on the second reading of the US Q1 GDP, which is expected to confirm a 0.3% contraction.
The Weekly Jobless Claims will provide a fresh glimpse into the US Labour market, and Fed officials Goldsbee, Kugler, and Daly might offer some clues about the bank’s easing calendar.
The highlight of the week, however, is Friday’s PCE Price Index, the Federal Reserve’s favourite inflation gauge, which is expected to show that price pressure ticked up in April.
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.