- AUD/USD struggles to extend its gains above 0.6900 as its uptrend remains firm.
- The Australian Dollar remains firm as the RBA is expected to keep interest rates steady at their current levels throughout the year.
- Strong bets on big Fed rate cuts weigh on the US dollar.
The AUD/USD pair is retreating after posting a fresh yearly high around 0.6900 in the North American session on Wednesday. The overall outlook for the pair remains firm as the Reserve Bank of Australia (RBA) signaled at its monetary policy meeting on Tuesday that interest rates will remain at their current levels until the end of the year.
The Australian Dollar (AUD) is also strengthened by the announcement of massive stimulus from China to boost household spending and revive the property sector. Being an indicator of China’s economic growth, the AUD receives higher inflows if China’s outlook improves.
Meanwhile, the US Dollar (USD) has retreated after a short-lived rally. The US Dollar Index (DXY), which tracks the value of the greenback against six major currencies, retreated to 100.20, the lowest level seen in over a year.
The US dollar is expected to continue to face pressure as market participants expect the Federal Reserve (Fed) to cut interest rates for the second consecutive time by 50 basis points (bps) in the November monetary policy.
AUD/USD is regaining the horizontal resistance drawn from the December 28, 2023 high of 0.6870 on a daily time frame. The short-term trend is bullish as the 20-day exponential moving average (EMA) at 0.6770 is sloping upwards.
The 14-day Relative Strength Index (RSI) is moving above 60.00, suggesting active bullish momentum.
The Australian asset will witness a fresh bullish move if it breaks above the intraday high of 0.6910, which will take the asset close to the February 16, 2023 high of 0.6936, followed by the psychological resistance of 0.7000.
On the other hand, a downside move below the September 19 low of 0.6738 will drag the asset towards the round support level of 0.6700 and the September 12 low of 0.6656.
AUD/USD Daily Chart
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). Since 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 Trade Balance. Market sentiment, i.e. whether investors are betting on riskier assets (risk-on) or seeking safe havens (risk-off), is also a factor, with 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 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 is not growing as fast as expected. Therefore, positive or negative surprises in Chinese growth data often have a direct impact on the Australian Dollar.
Iron ore is Australia’s largest export, worth $118 billion per year as of 2021, with China being its main destination. The price of iron ore can therefore be a driver of the Australian dollar. Typically, if the price of iron ore rises, the AUD rises as well, as aggregate demand for the currency increases. The opposite occurs when the price of iron ore falls. Higher iron ore prices also tend to lead to a higher probability 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 because of the excess demand created by foreign buyers wanting to purchase its exports versus what it spends on buying 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.
