- The AUD/USD quotes about 0.6520 at the time of writing, with the relations between the US and China increasing the demand for currencies linked to raw materials.
- Westpac’s consumer confidence in Australia disappoints, but the feeling in improvement limits the losses of the audience.
- The US Consumer Price Index (CPI) is expected to drive the Fed narrative and the demand of the US dollar.
The Australian dollar (AUD) is consolidating against the US dollar on Tuesday, since the aud/USD quotes above 0.6500 at the time of writing.
The developments in commercial conversations between the US and China in London continued to support the feeling of risk, increasing demand. Although improved relationships provided some support to the US dollar, the Aud/USD benefited from Australia’s close ties with China.
With senior officials from both countries pointing out advances, conversations have helped improve the feeling of broader risk, offering the AUD certain support in weaker domestic data. On Tuesday, the Westpac Consumer Trust Index for June fell to 0.5%, from 2.2% in May, pointing to a remarkable decline in the feeling of households.
However, since China is Australia’s largest shopping partner, the decrease in tensions between the US and China also helps support the demand for raw materials, a prominent promoter of the Aud/USD pricing pair.
The US CPI and Fed’s expectations provide an additional wind for the dollar
Looking forward, the markets are still focused on monetary policy divergence between the Federal Reserve (Fed) and the Australian Reserve Bank (RBA).
On Wednesday, the United States will publish the May Consumer Price Index (ICC), which is expected to report the expectations for the Fed.
It is projected that inflation general increases a monthly 0.3% in May, from 0.2% in April, with the annual rate rising to 2.5% from 2.3%.
The underlying ICC, which excludes food and energy prices, is also expected to increase a monthly 0.3%, compared to the previous 0.2%, with the annual reading, rising to 2.9% from 2.8%.
According to the CME Fedwatch tool, market participants expect the FED to maintain interest rates without changes within the current range of 4.25% to 4.50% in June and July meetings, with a 53.6% probability of a rate cut already incorporated for September.
If inflation shows additional relief signs, the Fed could adopt a more flexible approach towards its monetary career, which could relieve short -term rates expectations. Safe rates expectations could support the AU, while increasing inflation will probably solidify resistance to Fed fees cuts, providing support to the US dollar.
Faqs Australian dollar
One of the most important factors for the Australian dollar (Aud) is the level of interest rates set by the Australian Reserve Bank (RBA). Since Australia is a country rich in resources, another key factor is the price of its greatest export, iron mineral. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and commercial balance. The feeling of the market, that is, if investors are committed to more risky assets (Risk-on) or seek safe shelters (Risk-Off), it is also a factor, being the positive risk-on for the AUD.
The Australian Reserve Bank (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 the interest rates of the economy as a whole. The main objective of the RBA is to maintain a stable inflation rate of 2% -3% by adjusting the interest rates or the low. Relatively high interest rates compared to other large central banks support the AU, and the opposite for the relatively low. The RBA can also use relaxation and quantitative hardening to influence credit conditions, being the first refusal for the AU and the second positive for the AUD.
China is Australia’s largest commercial partner, so the health of the Chinese economy greatly influences the value of the Australian dollar (Aud). When the Chinese economy goes well, it buys more raw materials, goods and services in Australia, which increases the demand of the AU and makes its value upload. 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 mineral is the largest export in Australia, with 118,000 million dollars a year according to data from 2021, China being its main destination. The price of iron ore, therefore, can be a driver of the Australian dollar. Usually, if the price of iron ore rises, the Aud also does, since the aggregate demand of the currency increases. The opposite occurs when the price of low iron ore. The highest prices of the iron mineral also tend to lead to a greater probability of a positive commercial balance for Australia, which is also positive for the AUD.
The commercial balance, which is the difference between what a country earns with 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 requested exports, its currency will gain value exclusively for the excess demand created by foreign buyers who wish to acquire their exports to what you spend on buying imports. Therefore, a positive net trade balance strengthens the AUD, with the opposite effect if the commercial 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.
