- Aussie bears lick their wounds after retreating due to soft US Dollar and broad risk-on mood.
- The hawkish RBA, less dovish Fed expectations and the US political transition continue to influence AUD/USD price action.
- Mixed US data seems to have weakened the Greenback on Thursday.
The AUD/USD regained positive traction on Thursday following the overnight pullback from a one-week top. A softer US Dollar and a positive risk tone benefited the Aussie, as well as the Reserve Bank of Australia’s (RBA) hawkish stance. Traders look forward to US macro data and Federal Reserve (Fed) speakers for some meaningful opportunities.
This week, the AUD/USD is facing a bearish trend due to a stronger US Dollar supported by geopolitical concerns and higher bond yields. The RBA's hawkish stance, indicating potential interest rate adjustments, provides temporary support for the Aussie. However, weak Australian and Chinese economic data, along with the Fed's reluctance to cut interest rates quickly, continues to weigh on the AUD/USD pair.
Daily digest market movers: Australian Dollar fluctuates around 0.6500 as markets assess mixed US data
- On the US front, Initial Jobless Claims for the week ending November 15 totaled 213,000, below expectations of 220,000.
- Concerningly, Continuing Claims surged to 1.908 million, up from 1.872 million the previous week.
- The Philadelphia Fed Manufacturing Survey plunged into contractionary territory with a reading of -5.5, down significantly from the positive 8 and 10.3 seen earlier.
- The probability of a Fed rate cut in December has decreased by 16.5% since last week, which seems to have pushed the USD into a slight consolidation.
- USD bulls also pause as they await clarity on President-elect Donald Trump's policies.
AUD/USD technical outlook: Despite a slight recovery, AUD/USD indicators remain bearish
Technical indicators for the AUD/USD pair display some renewed momentum but remain subdued in negative territory. The Relative Strength Index (RSI) lingers well below the 50 mid-point, signaling bearish sentiment. The Moving Average Convergence Divergence (MACD) also remains under its signal line, reinforcing the downtrend.The pair faces resistance at the 20-day Simple Moving Average (SMA), which has served as a significant barrier. Until this level is decisively breached, downside risks remain elevated, suggesting that the AUD/USD may continue to slide 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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