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- Australian Dollar sees sharp gains as the week kicks off
Australian Dollar sees sharp gains as the week kicks off
- AUD/USD showed a significant increase of 0.75%, rising to 0.6720.
- The continued hawkish stance of the RBA supports the Aussie against its peers.
- Intense dovish bets on the Fed weigh on the USD.
On Monday, the AUD/USD is gaining significant traction mainly due to a weaker USD on a quiet Monday. In addition, the monetary policy divergence between the Federal Reserve (Fed), set to start cutting in September, versus the reluctance of the Reserve Bank of Australia (RBA) to cut is also pushing the pair upward.
Despite the mixed Australian economic outlook and the high inflation, the RBA's persistent hawkish stance has led to markets pricing in just 25 basis points of easing for 2024, which seems to be making the Aussie gain more traction.
Daily digest market movers: Aussie extends gains through RBA's hawkish guidance
- Aussie showed signs of gaining strength or at least maintaining its current levels, largely due to the hawkish guidance by the RBA.
- Despite the falling trend in iron ore prices, the RBA's persistent hawkish stance is providing significant support to the Australian Dollar.
- The markets are now looking forward to Tuesday’s discourse on the last RBA meeting's minutes, which could influence the pair's future trajectory.
- With a weakened USD due to a quiet Monday session, the AUD/USD pair has the potential for further upside facilitated by the monetary policy difference.
AUD/USD technical outlook: AUD/USD buyers prevail, bullish outlook persists
From a technical perspective, the AUD/USD pair has shown an inclination toward an upward trajectory based on the daily indicators. The Relative Strength Index (RSI), an oscillator that denotes market momentum, has been fluctuating around the mid-levels but has recently risen to 62, implying increased bullish sentiment. The Moving Average Convergence Divergence (MACD) further validates this bullish bias, evident from its rising green bars.
As the pair inches upward, it might face resistance around the 0.6750 mark, a level that presents a tough ceiling. Support is seen at 0.6730, 0.6715 and 0.6700.
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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