Australian Dollar retreats from daily highs, rejected at 20-day SMA
- AUD/USD declined by 0.14% to 0.6495 in Monday's session.
- Selling pressure near the intraday high of 0.6550 drove the AUD/USD lower.
- Markets await key US and Australian inflation data later this week.
The AUD/USD declined by 0.14% to 0.6495 in Monday's session, driven by selling pressure near the intraday high of 0.6550. Despite the US Dollar's weakness, the Australian Dollar's performance suggests its own underlying weakness. There won’t be any highlights in any of the Australian or American economic calendars.
The AUD/USD pair exhibits a mixed outlook, influenced by the interplay of a hawkish Reserve Bank of Australia (RBA) and mixed local economic data. The US Dollar's strength has weighed on AUD/USD, but the RBA's potential for future rate hikes may limit the downside.
Daily digest market movers: Australian Dollar retreats on quiet Monday, eyes on inflation data
- The AUD/USD pair retreats from its intraday high of 0.6550, losing most of its gains amid weak performance by both the Australian Dollar and the US Dollar.
- The US Dollar Index corrects to 106.80, pulling back from Friday's two-year high of 108.00.
- Investors will watch the US Personal Consumption Expenditure Price Index on Wednesday for clues on future Fed interest rate decisions.
- October’s core PCE inflation is expected to rise to 2.8%, up from 2.7% in September.
- Australia's CPI data for October, due Wednesday, is expected to show an increase to 2.3% from 2.1% in September.
- The CPI outcome could shape expectations for the RBA interest rate path in the coming months.
- The RBA is projected to keep its Official Cash Rate steady at 4.35% through year-end.
AUD/USD Technical Outlook: Pair faces resistance at 0.6540 with indicators showing mixed signals
The AUD/USD pair fell sharply after failing to break above the 20-day Simple Moving Average (SMA) at 0.6540, suggesting that the bulls are unable to stage a recovery. The Relative Strength Index (RSI) is below 50, indicating that the bears are in control. However, the Moving Average Convergence Divergence (MACD) is green, indicating that there is still some bullish momentum. Overall, the technical outlook is mixed, with the bears having the upper hand in the short term. If the AUD/USD pair breaks below the 0.6400 support level, it could fall further toward the 0.6300 level. On the other hand, if the pair can break above the 0.6540 resistance level, it could rally toward the 0.6600 level.
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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