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- Australian Dollar holds above 0.6350 amid mixed Chinese data, USD pullback
Australian Dollar holds above 0.6350 amid mixed Chinese data, USD pullback
- The Australian Dollar holds above 0.6350 in the Asian session.
- US Dollar slips as markets anticipate a Fed interest rate cut.
- Preliminary US PMIs failed to give the USD traction.
The Australian Dollar holds the bounce above 0.6350 in Monday’s session, supported by mixed Chinese economic releases and a softer US Dollar. Traders remain focused on Wednesday’s Federal Reserve (Fed) interest rate decision, which could shape near-term price action.
On the data front, S&P PMIs came in strong but failed to give the USD traction.
Daily digest market movers: Aussie holds gains as USD fails to move on strong S&P PMIs
- The US S&P Global Composite PMI rose to 56.6 in December’s flash estimate from 54.9, reflecting accelerating private sector growth, while Services PMI improved to 58.5 from 56.1.
- Conversely, the Manufacturing PMI dipped to 48.3 from 49.7, highlighting uneven sector performance.
- Despite strong US data, USD weakness persists ahead of the Fed decision, offering a mild lift to the Aussie.
- China’s mixed data and the stronger Australian jobs market offer some support to the Aussie, but upside remains capped by Fed uncertainty.
- For Wednesday’s Fed decision, markets have practically priced in a cut, but the bank’s messaging will be key.
AUD/USD technical outlook: Aussie flirts with oversold conditions as momentum weakens
The Relative Strength Index (RSI) sits near 34, hovering close to oversold conditions with little directional bias. Meanwhile, the Moving Average Convergence Divergence (MACD) histogram prints decreasing red bars, underscoring weakening momentum. With the pair deep in negative terrain, an upward correction might occur if the USD continues softening. That might be triggered on Wednesday after the Fed’s decision.
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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