Australian Dollar gains as US Dollar remains weak after high-tier data release
- AUD/USD pair rises to 0.6480 on Wednesday.
- Aussie benefits from US Dollar weakness despite soft Australian CPI.
- PCE data from the US meets expectations for inflation.
In Wednesday's session, the AUD/USD rose to 0.6480 as the US Dollar remained weak following the release of high-tier economic data. This comes despite Wednesday's publication of subdued Australian Consumer Price Index (CPI) inflation figures, which had previously limited the Aussie's rise. Nonetheless, the broader weakness in the Greenback continues to support the Australian Dollar.
The AUD/USD pair has struggled in recent trading sessions, weighed down by mixed Australian economic data, a hawkish Reserve Bank of Australia (RBA), and persistent US Dollar strength. The Aussie will still be sensitive to both local and American data as the monetary policy divergences between the RBA and the Federal Reserve (Fed) might shake the pair.
Daily digest market movers: Australian Dollar gains capped by Australian data, but USD weakness helps
- The Aussie’s rise occurred despite subdued Australian CPI inflation data.
- October's Australian CPI remained unchanged at 2.1%, below expectations, while the trimmed Mean CPI rose to 3.5% in October from 3.2% in September.
- Energy prices significantly contributed to the low headline inflation, falling by 35.6%. Petrol prices declined by 11.5%, impacting headline inflation.
- The RBA is unlikely to alter interest rates since these factors are deemed transitory.
- On the US front, the Gross Domestic Product from Q3 was reported at 2.8% as expected.
- Other data showed that Initial Jobless Claims declined to 213K, surpassing expectations, while Durable Goods Orders rose by a modest 0.2% in October, below forecasts.
- The highlight was the the Personal Consumption Expenditures (PCE) Price Index, which rose 0.2% MoM and 2.3% YoY, in line with expectations.
- Core PCE Price Index increased by 2.8% YoY, meeting market estimates.
- Following the data, the odds of a cut by the Fed in December remain high at around 60% but declined significantly in November, which favoured the Greenback’s rise.
AUD/USD technical outlook: Pair remains capped by 20-day SMA, with indicators recovering but still negative
The AUD/USD pair's indicators have shown a slight uptick but remain in negative territory, indicating ongoing bearish momentum. The RSI is hovering around the 40 region, while the MACD histogram remains red, reinforcing the downtrend.
The pair remains capped by the 20-day Simple Moving Average (SMA) acting as a significant resistance level. This technical outlook suggests that the AUD/USD may continue to face selling pressure in the near term, with further declines likely if the mentioned SMA isn’t conquered.
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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