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- Australian Dollar recovers after last week's losses
Australian Dollar recovers after last week's losses
- AUD/USD started the week on the right foot on a quiet Monday.
- Australia will release Q2 GDP data on Wednesday, which will be key.
- RBA Governor Bullock is expected to reiterate hawkish guidance on Thursday despite market expectations of a rate cut in December.
The AUD/USD gained 0.30% in Monday's session, advancing to 0.6790. The pair is trading slightly higher on a quiet Monday as markets look ahead to key US labor market data this week, culminating in the Nonfarm Payrolls (NFP) report on Friday. On the domestic front, Gross Domestic Product (GDP) data and Reserve Bank of Australia (RBA) Governor Bullock's speech on Thursday are the key events to watch.
The Australian economic outlook remains uncertain, with both positive and negative indicators. The RBA has taken a hawkish stance due to elevated inflation, leading financial markets to anticipate only a modest 25 basis points of easing in interest rates by 2024.
Daily digest market movers: Australian Dollar gains amid quiet trading, anticipation of key data
- Australia's Q2 GDP data will be released on Wednesday, with expectations of a 0.2% QoQ growth (vs. 0.1% in Q1) and a 0.9% YoY rate (vs. 1.1% in Q1).
- However, recent data on retail sales and private capital expenditure suggest downside risks to the GDP forecast.
- RBA Governor Bullock will speak on Thursday, likely reiterating the RBA's hawkish stance. Markets will look for clues on whether the bank is open to cutting or not this year.
- Despite the RBA's hawkish guidance, market expectations point to an 80% chance of a rate cut in December, reflecting concerns about slower economic growth.
AUD/USD technical outlook: Momentum flattens despite gains
The Relative Strength Index (RSI) rose back to 64 as the Moving Average Convergence Divergence (MACD) is green and flat, suggesting that the momentum is strong. The pair is approaching a resistance level at 0.6800, and if it breaks above this level, it could continue to rise toward 0.6830-0.6850. Support levels can be found at 0.6760 and 0.6740.
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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