Australian Dollar extends winning streak following Retail Sales

The Australian Dollar gains ground as Retail Sales exceeded the expected increase in August.
The AUD remains solid as the RBA to keep the monetary policy restrictive in the near term.
The US Dollar advances as Fed Chair Powell said the central bank will lower its benchmark rate ‘over time.’

The Australian Dollar (AUD) holds gains against the US Dollar (USD) on Tuesday, following better-than-expected Retail Sales data. Australian Bureau of Statistics (ABS) reported the primary gauge of Australia’s consumer spending, which rose 0.7% month-over-month in August, exceeding the market expectations of a 0.4% increase.

The AUD receives support from the hawkish sentiment surrounding the Reserve Bank of Australia (RBA) regarding its interest rate trajectory. The RBA kept its cash rate at 4.35% for a seventh consecutive meeting and stated that the policy would need to stay restrictive to ensure inflation slowed. Additionally, China’s stimulus measures have improved the demand outlook in Australia's largest trading partner, driving up commodity prices and strengthening the commodity-linked Australian Dollar.

The uptick of the AUD/USD pair could be restrained due to the stronger US Dollar (USD), which could be attributed to the latest remarks from the Federal Reserve (Fed) Chairman Jerome Powell. On Monday, Powell said that the central bank is not in a hurry and will lower its benchmark rate ‘over time.’ Fed Chair Powell added that the recent half-point interest rate cut should not be seen as an indication of similarly aggressive future actions, noting that upcoming rate changes are likely to be more modest.

Daily Digest Market Movers: Australian Dollar appreciates due to hawkish RBA’s policy outlook

The CME FedWatch Tool indicates that markets are assigning a 61.8% probability to a 25 basis point rate cut by the Federal Reserve in November, while the likelihood of a 50-basis-point decreased to 38.2%, down from 53.3% a day ago.
China's Caixin Manufacturing Purchasing Managers' Index (PMI) fell to 49.3 in September, indicating contraction, down from 50.4 in August. Meanwhile, China’s NBS Manufacturing PMI improved to 49.8 in September, up from 49.1 in the previous month and surpassing the market consensus of 49.5.
St. Louis Federal Reserve President Alberto Musalem stated on Friday, according to the Financial Times, that the Fed should begin cutting interest rates "gradually" following a larger-than-usual half-point reduction at the September meeting. Musalem acknowledged the possibility of the economy weakening more than anticipated, saying, "If that were the case, then a faster pace of rate reductions might be appropriate."
On Friday, the US Core Personal Consumption Expenditures (PCE) Price Index for August, increased by 0.1% MoM, falling short of the expected 0.2% rise, aligning with the Federal Reserve's outlook that inflation is easing in the US economy. This has reinforced the possibility of an aggressive rate-cutting cycle by the Fed.
During his China visit, Australian Treasurer Jim Chalmers had candid and productive discussions with the National Development and Reform Commission (NDRC). Chalmers highlighted China's economic slowdown as a key factor in weaker global growth while welcoming the country's new stimulus measures as a "really welcome development."
China plans to inject over CNY 1 trillion in capital into its largest state banks, facing challenges such as shrinking margins, declining profits, and increasing bad loans. This substantial capital infusion would mark the first of its kind since the 2008 global financial crisis.
According to the Reserve Bank of Australia's Financial Stability Review from September 2024, the Australian financial system remains resilient, with risks largely contained. However, notable concerns include stress in China's financial sector and the limited response from Beijing to address these issues. Domestically, a small but growing portion of Australian home borrowers are falling behind on their payments, though only about 2% of owner-occupier borrowers are at serious risk of default.

Technical Analysis: Australian Dollar holds position above 0.6900, lower boundary of an ascending channel

The AUD/USD pair trades near 0.6930 on Tuesday. A daily chart technical analysis shows that the pair is trending upwards within an ascending channel. The pair has held above the lower boundary of the channel, suggesting that the bullish bias remains intact. Moreover, the 14-day Relative Strength Index (RSI) is slightly below the 70 level, reinforcing the positive momentum.

In terms of resistance, the AUD/USD pair may aim for the area near the upper boundary of the ascending channel, around the 0.7020 level. A successful break above the ascending channel could indicate further bullish momentum. However, if the pair fails to breach this resistance, a pullback within the channel is possible.

On the downside, the immediate support appears at the lower boundary of the ascending channel around the level of 0.6890, followed by the nine-day Exponential Moving Average (EMA) at the 0.6866 level. A break below this EMA could weaken the bullish bias and lead the AUD/USD pair to navigate the region around its six-week low of 0.6622.

AUD/USD: Daily Chart

Australian Dollar PRICE Today

The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the Japanese Yen.

	USD	EUR	GBP	JPY	CAD	AUD	NZD	CHF
USD		-0.05%	-0.09%	0.16%	-0.03%	-0.25%	0.04%	-0.07%
EUR	0.05%		-0.04%	0.22%	0.02%	-0.19%	0.12%	-0.03%
GBP	0.09%	0.04%		0.27%	0.06%	-0.16%	0.17%	0.02%
JPY	-0.16%	-0.22%	-0.27%		-0.18%	-0.41%	-0.10%	-0.23%
CAD	0.03%	-0.02%	-0.06%	0.18%		-0.21%	0.10%	-0.04%
AUD	0.25%	0.19%	0.16%	0.41%	0.21%		0.31%	0.16%
NZD	-0.04%	-0.12%	-0.17%	0.10%	-0.10%	-0.31%		-0.14%
CHF	0.07%	0.03%	-0.02%	0.23%	0.04%	-0.16%	0.14%

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 Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).

Australian Dollar FAQs

What key factors drive the Australian Dollar?

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.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

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.

How does the health of the Chinese Economy impact the Australian Dollar?

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.

How does the price of Iron Ore impact the Australian Dollar?

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.

How does the Trade Balance impact the Australian Dollar?

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.