Australian Dollar rises amid hawkish RBA guidance
- AUD/USD climbs as RBA Governor Michelle Bullock emphasizes the need to maintain a restrictive rate stance.
- US presidential election remains the main driver for AUD/USD ahead of Trump-Harris debate.
- Trump’s victory expected to be unfavorable for AUD due to his promise to raise tariffs on China.
In Tuesday's session, the AUD/USD rose 0.77% to 0.6638 as the Reserve Bank of Australia (RBA) signaled a hawkish stance on interest rates. The central bank's Governor, Michelle Bullock, stressed the need to maintain a restrictive monetary policy amid persistent inflationary pressures.
The Australian Dollar is also being influenced by the upcoming US presidential election, with a potential victory by Donald Trump viewed as unfavorable for AUD due to his promise to raise tariffs on China. In addition, the pair is expected to react to the release of US inflation data and the Federal Reserve's (Fed) policy meeting this week, as market participants assess their potential impact on the USD.
Daily digest market movers: Australian Dollar rising as RBA favors hawkish guidance
- AUD/USD strengthened as the RBA maintained a hawkish stance, leaving interest rates unchanged at 4.35%.
- RBA Governor Michelle Bullock emphasized the need for a restrictive interest rate stance due to persistent upside risks to inflation.The RBA stated that policy will need to remain restrictive until inflation moves sustainably toward the target range.
- The outlook for AUD/USD is uncertain amid the upcoming US presidential election, with Trump's victory potentially negative for the Australian Dollar due to his proposed tariffs on China.
- Investors will also monitor the Fed's policy meeting this week, with a 25 basis point interest rate cut widely anticipated.
AUD/USD technical outlook: Bulls recover and aim for the 100-day SMA
The AUD/USD pair has been recovering after a recent decline. The Relative Strength Index (RSI) is suggesting that buying pressure is recovering, as its value is at 48, rising sharply in the negative area. The Moving Average Convergence Divergence (MACD) is suggesting that selling pressure is flat, but as it's staying in the red, a change in trend could be seen in the following sessions. The overall outlook suggests a neutral to slight positive sentiment, with the pair likely to trade within a range before breaking out.The pair is striving to hold the psychological level of 0.6600 and reclaim the 200-day Simple Moving Average (SMA) at 0.6630. This move indicates a potential shift in market sentiment, with buyers regaining control after a period of consolidation.
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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