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- Australian Dollar continues to gain strength on RBA’s hawkish stance, weaker USD
Australian Dollar continues to gain strength on RBA’s hawkish stance, weaker USD
- AUD/USD shows an increase, climbing to 0.6950.
- RBA’s Bullock was on the wires and maintained its hawkish stance.
- A weaker USD also benefited the Aussie.
The AUD/USD pair experienced an increase of 0.40% during Friday's session, settling near 0.6950. Mixed sentiment data from the United States combined with the words of Reserve Bank of Australia's (RBA) Governor Michele Bullock impacted the Aussie.
The RBA's continued hawkish stance, despite the mixed Australian economic forecast and increasing inflation, has resulted in markets predicting only a 25-basis-point easing for 2024, which seems to be making the Aussie gain interest.
Daily digest market movers: Aussie gains following Gov. Bullock's words
- Friday brought some adjustments in the AUD/USD pair, a reflection of the comments by RBA Governor Bullock.
- She expressed vigilance toward potential inflation risks, deeming it premature to consider any rate cuts.
- Simultaneously, Bullock acknowledged the uncertainty of the outlook, explaining that the bank doesn't foresee being in a position to cut rates in the near term. She noted that, relative to other countries, Australia's policy rate is at its peak of 4.35%.
- A weakened Greenback stems from mixed sentiment figures and weak housing market data from the United States.
- As monetary policies diverge, the pair may see further upside.
AUD/USD technical outlook: AUD/USD buyers remain strong, outlook optimistic
On the technical side, the AUD/USD pair has shown significant volatility, with fluctuations favoring a slight bias toward bullish momentum. The Moving Average Convergence Divergence (MACD) validates this bias, demonstrating rising green bars.
The Relative Strength Index (RSI), an oscillator demonstrating market momentum, has maintained a value around 50 that points northwards and offers a bullish signal. Key support levels are at 0.6600-0.6630, whereas resistance appears near the 0.6650 region. A breakout in either direction could potentially hint at further directional intent.
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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