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- Australian Dollar declines on resurgent US Dollar demand
Australian Dollar declines on resurgent US Dollar demand
- AUD/USD value has dropped due to consistent gains in the US Dollar.
- Monetary policy divergence between the RBA and the Fed could provide some relief to AUD/USD.
- Uncertainty surrounding China's economic outlook and stimulus efforts remains a key challenge for the Aussie.
The AUD/USD pair has declined in the Monday session, following consistent gains in the US Dollar. The pair fell by 0.80% to 0.6655 at the time of writing. The declines in the Aussie have been attributed to concerns over China's stimulus measures and recent weakness in copper prices.
However, monetary policy divergence between the Reserve Bank of Australia (RBA) and the Federal Reserve (Fed) could provide some support to AUD/USD, but the uncertainty surrounding China's economic outlook remains a key challenge for the currency. Investors remain vigilant to incoming Aussie data, as it might delay the start of the RBA’s easing cycle.
Daily digest market movers: Australian Dollar declines based on China, copper news
- Persistent weakness in copper prices and a modest decline in iron ore prices further weighed on the Australian Dollar.
- The RBA is keeping its cash rate steady at 4.35% and demands further data to start cutting rates.
- That being said, the latest meeting minutes revealed a more dovish outlook, increasing market expectations of a 25-basis-point rate cut by year-end.
- Elsewhere, deputy Governor Hauser warned that Australian rates would not drop as much or as soon as other central banks due to persistent inflation.
- This might benefit the Aussie as its peers have already started cutting rates. Higher rates might attract foreign investors, bolstering demand for the Australian currency.
AUD/USD technical outlook: Pair faces ongoing selling pressure
The technical outlook for the AUD/USD suggests ongoing selling pressure, indicated by the Relative Strength Index (RSI) close to the oversold area with a declining slope. This signals increasing momentum behind the sell-off. Furthermore, the Moving Average Convergence Divergence (MACD) histogram is red and rising, reinforcing the bearish bias.Significant support levels include 0.6650, 0.6630 and 0.6600, while resistance can be found at 0.6700, 0.6715 and 0.6750.
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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