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- Australian Dollar resumes gains as USD weakens further after Powell’s words
Australian Dollar resumes gains as USD weakens further after Powell’s words
- AUD/USD soared on Friday after Powell’s words at the Jackson Hole Symposium.
- Powell hinted that the Fed is ready to cut rates.
- On the other hand, the RBA is comfortable with restrictive rates, which favors the Aussie.
AUD/USD rose by more than 1% to 0.6790 in Friday’s session, finding stability around 0.6725. This upward move comes as the US Dollar weakens following Federal Reserve (Fed) Chair Jerome Powell's speech at the Jackson Hole symposium.
Despite mixed economic signals from Australia, the Reserve Bank of Australia's (RBA) cautious stance due to high inflation continues to support the Australian Dollar.
Daily digest market movers: Aussie gains strength on monetary policy divergences
- Australian Dollar is bolstered by the latest RBA meeting minutes, which reveal a reluctance to ease monetary policy soon.
- RBA projects inflation to stay above the 2-3% target until the end of 2025, suggesting interest rates may remain elevated for an extended period.
- Governor Bullock has recently stated that the bank has no plans of cutting in the near term.
- China’s recent measures to support the housing market are not expected to have a significant impact due to underlying debt issues, but they do offer some additional support for the Australian Dollar, given the close economic ties between Australia and China.
Technical analysis: AUD/USD sees rising momentum, might consolidate
After briefly consolidating, the AUD/USD rose to highs not seen since January around 0.6790. The Relative Strength Index (RSI) is around 67, indicating that the pair is near the overbought threshold. Meanwhile, the Moving Average Convergence Divergence (MACD) shows rising green bars, suggesting building bullish momentum.
Volume has remained high over the past sessions, reflecting strong interest from buyers. Resistance levels to watch include 0.6800 and 0.6850, while support levels are at 0.6700 and 0.6650.
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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