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- Australian Dollar maintains strength amid RBA's firm stance
Australian Dollar maintains strength amid RBA's firm stance
- AUD/USD registered a boost, settling near 0.6600.
- RBA maintains its hawkish position, undergirding a strengthened AUD.
- Investors to eye upcoming mid-tier Australian economic figures during the Asian session.
The AUD/USD pair experienced an increase of 0.40% during Monday's session, settling near 0.6600. Undoubtedly, the Reserve Bank of Australia's (RBA) unwavering hawkish stance and stronger Chinese inflation figures reported last week provide a supportive platform for the Aussie, although escalating geopolitical tensions in the Middle East might limit its upside.
Considering the mixed Australian economic outlook and high inflation, the RBA has all the reasons to remain hawkish, which might continue benefiting the Aussie.
Daily digest market movers: Aussie up after RBA’s hawkish directions last week, eyes on data later in Asian session
- The Reserve Bank of Australia held its rates steady at 4.35% for a sixth consecutive session last week, noting that "the board is not dismissing any possibilities."
- The Bank underlined the significance of remaining vigilant toward potential inflation threats, implying a reluctance for hasty policy changes.
- Meanwhile, Westpac analysts have shifted their forecast for the first rate cut from November 2024 to February 2025. Hence, the RBA's hawkish posture is likely to bolster the AUD in the near term.
- Investors anticipate further clues from Chinese Retail Sales and Industrial Production figures coming Thursday. Additionally, Australian Wage data from Q2 and Westpac Confidence figures from July, to be released during the upcoming Asian session, will hold the market's attention.
AUD/USD technical outlook: Pair encounters significant resistance around 0.6600
The price action of AUD/USD over the past week reflects that the bulls are facing considerable resistance around the 0.6600 level. The Relative Strength Index (RSI) continues to hover around the neutral zone, while the Moving Average Convergence Divergence (MACD) points to a steady bullish traction. This points out that the recent bullish recovery is waiting for a fundamental catalyst to pierce through the 0.6600 level.
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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