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- AUD/USD features mild losses after mixed Australian NAB figures
AUD/USD features mild losses after mixed Australian NAB figures
- AUD/USD wades through mixed trading as sellers regain momentum.
- Focus is now on Wednesday’s US inflation figures and Fed dot plot.
- Australia releases mixed NAB business survey figures.
On Tuesday, the AUD/USD pair experienced mixed trading, facing some bearish pressure and lingering around the 0.6605 area. This shift occurred as sellers re-entered the market after a minor rebound on Monday. The ongoing Federal Reserve (Fed) two-day meeting, due to conclude on Wednesday, and the US May inflation data release will be the key drivers this week.
On the Australian front, a mixed economic outlook with inflation stubbornly high might prompt the Reserve Bank of Australia (RBA) to delay cuts, which might limit losses for the Aussie.
Daily digest market movers: Aussie is under pressure as traders anticipate CPI and the Fed's decision
- On the US side, markets await the May Consumer Price Index (CPI) data due to be released on Wednesday.
- Fed's two-day meeting, which began on Tuesday and will end on Wednesday, has gripped the market's attention. Any fresh clue on their interest rate forecast might trigger volatility in markets.
- Guidance from an updated dot plot are anticipated as well.
- NAB’s May business survey shows mixed results for Australia’s outlook as the business confidence dropped to a six-month low of -3 from 1 in April.
- Business conditions dipped slightly to 6, just below the long-term average while the Employment sub-component showed improvement.
- These indicators suggest the RBA should remain cautious about easing prematurely.
Technical analysis: AUD/USD maintains support despite retracement
Following recent declines, the Relative Strength Index (RSI) continues to be below 50, supporting the bearish mood, while the Moving Average Convergence Divergence (MACD) prints red bars, reflecting a growing selling pressure.
Nonetheless, the positive outlook remains the same as the pair remains above the 100 and 200-day SMA at approximately 0.6550, suggesting an overall positive trend.
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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