Australian Dollar sinks near 0.6400 amid heightened expectations of RBA's dovish stance
- AUD/USD fell 0.76% to 0.6436 in Wednesday's session.
- Disappointing Australian data sent the AUD/USD to a fresh four-month low near 0.6400.
- Weak Q3 GDP data has boosted bets that the RBA will start cutting interest rates sooner rather than later.
The AUD/USD declined by 0.76% to 0.6435 in Wednesday's session, driven by disappointing data results from key fundamentals in Australia. This has sent AUD/USD to fresh four-month lows in the boundaries of the key contention zone at 0.6400.
In that sense, poor economic activity data led markets to believe that the Reserve Bank of Australia might consider cutting rates sooner instead of delaying it to May 2025.
Daily digest market movers: Australian Dollar sinks after weak GDP data from Australia
- Australia's GDP growth unexpectedly slows to 0.8% year-over-year, below estimates of 1%.
- Quarterly GDP expands by 0.3% below 0.4%.
- This weak GDP data has increased expectations for RBA interest rate cuts to begin in April 2025.
- On the US front, the Institute for Supply Management (ISM) Services PMI eased to 52.1 in November, below estimates and lower than October’s 56 reading.
- In addition, Jerome Powell was on the wires and emphasized the Federal Reserve's independence, which is supported by both political parties.
- Fed Chair Powell noted that the US economy is strong, with low unemployment and progress on inflation.
- He confirmed that the Fed is moving cautiously toward neutral rates to balance inflation control with economic stability.
AUD/USD technical outlook: Pair faces selling pressure and struggles to recover
The AUD/USD pair remains under severe selling pressure and struggles to make a stride amidst a combination of fundamental and technical headwinds. Indicators stand firmly in the red, signaling the continuation of the bearish momentum.
The Relative Strength Index (RSI) plunges deep in the negative area, near the oversold territory, indicating extreme selling conditions. Meanwhile, the Moving Average Convergence Divergence (MACD) line lies well below the signal line, confirming the bearish bias. Overall, the technical outlook remains overwhelmingly bearish, suggesting that the AUD/USD may continue to face headwinds in the near term.
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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