Australian Dollar declines as China's outlook weighs
- AUD/USD declines as Chinese stimulus concerns weigh on market sentiment.
- Risk-perceived currencies are also under pressure due to rising Oil prices and the Israel conflict.
- RBA Meeting Minutes gave some dovish insights on the RBA’s stance.
The AUD/USD declined by 0.60% to 0.6725 in Tuesday's session, influenced by China's uncertain economic outlook. A leading Chinese official failed to go into detail about the size or parameters of the government’s upcoming stimulus measures, which worried investors and sent the Chinese stock market reeling.
Despite the uncertainties surrounding the Australian economy, the Reserve Bank of Australia (RBA) signaled a dovish tone in the release of its latest minutes, which fueled bets of an initial cut in December.
Daily digest market movers: Australian Dollar slips after RBA minutes, China outlook
- Regarding the RBA minutes, during the September 24 meeting, the RBA kept the cash rate target steady at 4.35% and maintained its neutral stance.
- However, the minutes revealed a more dovish tone as the central bank removed the August meeting's statement that "a reduction in the cash rate target was unlikely in the near term."
- Notably, RBA Deputy Governor Hauser dismissed the characterization of the minutes as dovish, emphasizing that the task of reducing inflation is "not finished yet."
- Markets currently place around 50% odds on a 25 bp rate cut by December.
- On the Fed’s side, markets eased on the aggressive dovish bets and provided some relief to the Greenback.
- This week’s Consumer Price Index (CPI) reading will be important.
AUD/USD technical outlook: Aussie pair under bearish momentum, must hold 0.6700
The AUD/USD pair has been trading with a strong downward bias in the last few sessions. The Relative Strength Index (RSI) is in the negative area of the map and is declining sharply. The RSI value of 40 suggests that selling pressure is rising. The MACD is also bearish with the histogram declining and red.
The overall technical outlook is bearish, and the pair might use supports at 0.6700, 0.6650 and 0.6600. On the other hand, it has resistance at 0.6800, 0.6850 and 0.6900.
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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