Australian Dollar strengthens past 0.6500 mark following hawkish RBA Minutes release
- AUD/USD rose by 0.15% to 0.6520 in Tuesday's session.
- Aussie climbed due to hawkish RBA Minutes, a weaker US Dollar, and hopes for Chinese economic stimulus.
- RBA Board members indicated no "immediate need" to adjust the cash rate, leaving the door open for future changes.
The AUD/USD climbed by 0.15% to 0.6520 in Tuesday's Asian trading, driven by several factors. The hawkish Reserve Bank of Australia (RBA) Minutes provided support to the Australian Dollar, as did a weaker US Dollar and hopes for Chinese economic stimulus. The market's attention will now shift to upcoming mid-tier US economic data and speeches by Federal Reserve (Fed) officials, which could further influence the pair's movement.
The AUD/USD has rebounded as the US Dollar weakened, potentially aided by hawkish RBA sentiment. However, the Aussie faces challenges due to weak domestic and Chinese economic data.
Daily digest market movers: Australian Dollar gains ground aided by hawkish RBA and weaker USD
- The RBA Board remains vigilant to upside inflation risks and believes policy needs to remain restrictive.
- According to the Minutes, the Board sees no "immediate need" to change the cash rate, but nothing is ruled out regarding future changes.
- The Board discussed scenarios where policy would need to stay restrictive for longer or tighten further.
- The report showed that the bank considers that rates might need to rise if the Board judged that policy was not as restrictive as assumed.
AUD/USD technical outlook: Indicators are in recovery mode but still in negative territory
Technical indicators for the AUD/USD pair continue to show signs of recovery, with both the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) trending higher. However, they remain in negative territory, suggesting that the downtrend is not yet over.
For a sustained recovery to be confirmed, buyers will need to push the indicators back into positive territory and hold them there. The conquering of the 0.6580 level, where the 20-day Simple Moving Average (SMA) converges, would be a strong sign that the pair has recovered.
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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