- AUD/USD attracts some buyers after Trump said he could reach a trade deal with China.
- Expectations of further Fed rate cuts weigh on the USD amid a positive risk tone and also lend support.
- The pair remains on track to snap a three-week losing streak as traders focus attention on US PMIs.
The AUD/USD pair breaks a two-day consolidation range and rises to a more than one-month high, around the 0.6330 area on the last day of the week. Spot prices remain on a positive intraday bias through the first half of the European session, with bulls now awaiting a move beyond the 50-day SMA before positioning for further gains amid the general weakness of the US Dollar (USD).
The Dollar Index (DXY), which tracks the value of the greenback against a basket of currencies, falls to a one-month low amid expectations that the Federal Reserve (Fed) will further reduce borrowing costs for end of this year. Expectations were boosted by comments from US President Donald Trump on Thursday saying he will demand that interest rates be lowered immediately. This, coupled with a generally positive risk tone, weakens the safe-haven dollar and provides a nice boost to the AUD/USD pair.
Global risk sentiment gets an additional boost on Friday after Trump said he would prefer not to use tariffs on China and could reach a trade deal with the world’s second-largest economy. Furthermore, Trump’s comments ease inflation concerns and cause a further decline in US Treasury yields, which turns out to be another factor weighing on the USD. Apart from this, technical buying above the 0.6300 level contributes to the positive intraday movement of the AUD/USD pair.
With the latest rally, spot prices are up around 200 pips from the lowest level since April 2020 hit earlier this month and remain on track to snap a three-week losing streak. Traders are now awaiting the release of preliminary US PMIs to gain some momentum later during the American session. Attention will then shift to China’s official PMIs on Monday, which will influence sentiment around the Australian Dollar (AUD), China’s proxy.
Australian Dollar FAQs
One of the most important factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). As Australia is a resource-rich country, another key factor is the price of its largest export, iron ore. The health of the Chinese economy, its largest trading partner, is a factor, as is inflation in Australia, its growth rate and the Balance of Trade. Market sentiment, that is, whether investors bet on riskier assets (risk-on) or seek safe havens (risk-off), is also a factor, with the risk-on being positive for the 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 RBA’s main objective 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 ones. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former being negative for the AUD and the latter being positive for the AUD.
China is Australia’s largest trading partner, so the health of the Chinese economy greatly influences the value of the Australian Dollar (AUD). When the Chinese economy is doing well, it buys more raw materials, goods and services from Australia, which increases demand for the AUD and drives up its value. The opposite occurs when the Chinese economy does not grow as fast as expected. Therefore, positive or negative surprises in Chinese growth data usually have a direct impact on the Australian Dollar.
Iron ore is Australia’s largest export, with $118 billion a year according to 2021 data, with China being its main destination. The iron ore price, therefore, may be a driver of the Australian dollar. Typically, if the price of iron ore rises, the AUD also rises as aggregate demand for the currency increases. The opposite occurs when the price of iron ore falls. Higher iron ore prices also tend to result in a higher likelihood of a positive trade balance for Australia, which is also positive for the AUD.
The trade balance, which is the difference between what a country earns from its exports and 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, its currency will gain value solely from the excess demand created by foreign buyers wanting to purchase its exports versus what it spends on purchasing imports. Therefore, a positive net trade balance strengthens the AUD, with the opposite effect if the trade balance is negative.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
