Australian Dollar remains above 0.6500, lacking momentum due to trade war concerns
- Aussie mildly rose to 0.6510 in Friday's session.
- Gains in the Aussie pair are influenced by broad-based US Dollar weakness.
- Aussie finds support but faces pressure from trade war concerns between China and the US.
The AUD/USD pair extends gains for the third straight day on Friday, although it has trimmed a portion of its intraday gains and holds above the 0.6500 psychological threshold. The pair recently reached a multi-day high before retracing some of its intraday gains. The positive momentum in the pair is influenced mainly by broad-based US Dollar weakness.
Despite showing signs of resilience and gaining, the US Dollar remains under pressure against most major currencies. The weakness in the US Dollar is primarily due to dovish comments from Federal Reserve Chairman Jerome Powell, who hinted at a pause in the US interest rate hiking cycle. This has led market participants to speculate that the Fed may not raise interest rates as aggressively as previously anticipated.
Daily digest market movers: Australian Dollar mixed, trade war concerns limit the upside
- AUD/USD is maintaining its upward trend for the third consecutive day despite a slight pullback in intraday gains.
- The AUD/USD pair reversed early gains and trades mixed around 0.6500 amid concerns over the US-China trade war.
- The US is set to unveil further AI chip sanctions against China as early as Monday, which is weighing on the AUD/USD due to risk-off market sentiment.
- This week, the AUD has gained support due to weakness in the USD, despite mixed Australian economic data and a hawkish Reserve Bank of Australia.
AUD/USD technical outlook: Outlook improves as bulls gain momentum, indicators signal further gains ahead
The AUD/USD pair continued to gain ground and approached the 20-day Simple Moving Average (SMA) but faced rejection. However, the outlook remains positive as bullish momentum continues to build.
The AUD/USD pair is likely to find support at the 20-day SMA and the ascending trendline from the August low. On the upside, immediate resistance is at the 50-day SMA and the 0.6600 round figure. A break above this resistance area could lead to further gains toward the 0.6700 mark.
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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