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- Australian Dollar extends gains after higher Trade Balance
Australian Dollar extends gains after higher Trade Balance
- The Australian Dollar rises as the Aussie Trade Surplus widens in May.
- The Australian Bureau of Statistics reported a Trade Balance figure of 6,548 million MoM in May, surpassing the expected 5,500 million.
- The US Dollar struggles as Wednesday's mixed data fuel rate cut speculations by the Fed.
The Australian Dollar (AUD) retraced its recent losses on Thursday. The AUD/USD pair strengthened after the Trade Balance release in Australia, which widened to 6,548 million month-over-month in May, exceeding the expected 5,500 million and April's balance of 5,024 million.
The Australian Dollar could appreciate due to a hawkish statement by Reserve Bank of Australia (RBA) Governor Michele Bullock on Wednesday. Bullock indicated that the central bank is prepared to increase interest rates if the Consumer Price Index (CPI) does not return to the target range of 1%-3%. She also acknowledged that the labor market is easing on several measures, as reported by NCA NewsWire.
The US Dollar (USD) struggled after mixed economic data was released in the United States (US), which fueled interest rate cut speculations by the US Federal Reserve (Fed). As per the CME FedWatch Tool, the probability of a Fed rate cut by at least 25 basis points has increased to nearly 70.0%, up from 47.5% a week earlier.
The depreciation in the US Treasury yields are putting pressure on the Greenback. Investors await the key US employment data releases on Friday, including the Average Hourly Earnings and Nonfarm Payrolls.
Daily Digest Market Movers: Australian Dollar rises due to improved risk sentiment
- On Wednesday, the ISM US Services PMI soared to 53.8 in May, marking its highest level in nine months and significantly surpassing the forecast of 50.8. In contrast, the ADP US Employment Change report showed that 152,000 new workers were added to payrolls in May, the lowest in four months and well below the forecast of 175,000 and the downwardly revised figure of 188,000 for April.
- Australia's Gross Domestic Product (GDP) was released on Wednesday, which grew 0.1% in the first quarter, against the expected 0.2% reading. On an annual basis, the economy grew 1.1%, slightly below the expected 1.2%.
- Judo Bank Purchasing Managers Index (PMI) came in at 52.5, lower than the expected reading of 53.1 for May. Meanwhile, Judo Bank Composite PMI recorded a reading of 52.1 in May, a slight decrease from 53.0 in April. This shows that Australia's private sector output continued to grow for the fourth consecutive month, though at a slower rate.
- Caixin China Services PMI came in at 54.0 in May, surpassing expectations of 52.6 and the previous figure of 52.5. This marked the 17th consecutive month of expansion in services activity, indicating the fastest pace since July 2023. Any change in the Chinese economy could impact the Australian market as both countries are close trade partners.
- Last week, Atlanta Fed President Raphael Bostic remarked in an interview with Fox Business that he doesn't believe further rate hikes should be required to reach the Fed's 2% annual inflation target. Additionally, New York Fed President John Williams stated that inflation is still too high but should moderate over the second half of 2024. Williams doesn't feel the urgency to act on monetary policy, per Reuters.
Technical Analysis: Australian Dollar remains above 0.6650
The Australian Dollar trades around 0.6670 on Thursday. Analysis of the daily chart shows a bullish bias for the AUD/USD pair, as it remains within a rising wedge pattern. This bullish bias is further supported by the 14-day Relative Strength Index (RSI), which is above the 50 level.
Potential upside targets for the AUD/USD pair include the psychological level of 0.6700, the four-month high of 0.6714, and the upper limit of the rising wedge around 0.6750.
On the downside, immediate support is at the 21-day Exponential Moving Average (EMA) at 0.6634, which aligns with the lower boundary of the rising wedge. Additional support is found at the psychological level of 0.6600. A further decline could pressure the AUD/USD pair towards the throwback support region at 0.6470.
AUD/USD: Daily Chart
Australian Dollar price today
The table below shows the percentage change of the Australian Dollar (AUD) against listed major currencies today. The Australian Dollar was the strongest against the US Dollar.
| USD | EUR | GBP | CAD | AUD | JPY | NZD | CHF | |
| USD | -0.16% | -0.10% | -0.14% | -0.35% | -0.25% | -0.24% | -0.23% | |
| EUR | 0.16% | 0.07% | 0.02% | -0.17% | -0.07% | -0.04% | -0.06% | |
| GBP | 0.09% | -0.06% | -0.05% | -0.25% | -0.14% | -0.11% | -0.14% | |
| CAD | 0.13% | -0.03% | 0.06% | -0.22% | -0.12% | -0.10% | -0.10% | |
| AUD | 0.36% | 0.20% | 0.27% | 0.20% | 0.09% | 0.12% | 0.13% | |
| JPY | 0.23% | 0.09% | 0.14% | 0.08% | -0.12% | -0.02% | 0.00% | |
| NZD | 0.24% | 0.04% | 0.14% | 0.10% | -0.13% | -0.02% | 0.01% | |
| CHF | 0.23% | 0.06% | 0.14% | 0.09% | -0.12% | -0.03% | -0.01% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Euro from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent EUR (base)/JPY (quote).
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.
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