Australian Dollar rises slightly on weak US data and hawkish RBA
- AUD/USD gains on soft US data and RBA’s hawkish outlook.
- RBA Bullock reiterates hawkish stance, signaling no near-term rate cuts.
- Monetary policy diveargence favors the Aussie as US data softens and RBA remains hawkish.
The AUD/USD pair traded in a tight range on Thursday but tallied daily gains after the USD was seen weak after mixed US data.
The Australian economy's uncertain prospects and the Reserve Bank of Australia's (RBA) aggressive stance on interest rates have led to a shift in market expectations. However, the bank hasn't yet embraced cuts in the near term.
Daily digest market movers: Australian Dollar gains slightly after trade figures and hawkish RBA
- Australian exports rose 0.7% MoM and 1.4% YoY in July, while imports fell by 0.8% MoM and 3.0% YoY.
- Exports to China slumped significantly in July, with coal and iron ore prices continuing to decline.
- On Thursday, RBA Governor Bullock maintained a hawkish stance, reiterating that the Board does not expect to cut rates in the near term.
- Across the Pacific, US labor market data disappointed, while ISM Services PMI figures helped the USD recover some losses.
- Monetary policy divergence continues to favor the Aussie, with RBA cash rate futures pricing in a high probability of a 25 bps cut by December.
AUD/USD technical outlook: Indicators flash mixed signals, overall outlook remains positive
On the daily chart, the Relative Strength Index (RSI) points up while the Moving Average Convergence Divergence (MACD) prints a red bar, and both flash mixed signals. However, with the pair above the Simple Moving Average (SMA), the overall outlook is positive, with the pair set to retest the zone above 0.6780.
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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