- The Australian Dollar weakens in the Asian session on Thursday.
- Australia’s slower-than-expected Q3 GDP and rising expectations of a dovish stance from the RBA put some selling pressure on the Aussie.
- Weekly US initial jobless claims and goods trade balance will be released later on Thursday.
The Australian Dollar (AUD) remains under selling pressure on Thursday. Disappointing Australian economic data and rising expectations of an early interest rate cut by the Reserve Bank of Australia (RBA) are dragging the Aussie lower. Additionally, concerns about possible import tariffs by President-elect Donald Trump could contribute to the AUD’s decline.
Traders will be watching weekly US initial jobless claims and the goods trade balance on Thursday for fresh impetus. Any sign of weaker US labor market data could weaken the dollar and help limit the pair’s losses. On Friday, all eyes will be on the US Nonfarm Payrolls (NFP) report for November.
Australian Dollar Maintains Negative Bias Amid Disappointing Data, Dovish RBA Bets
- Australia’s trade surplus rose to $5.953bn month-on-month in October from $4.609bn in September, better than forecasts of $4.5bn.
- Australia’s Gross Domestic Product (GDP) grew 0.3% quarter-on-quarter in the third quarter (Q3), compared to growth of 0.2% in the second quarter. This reading was below the market consensus of 0.4%.
- Australia’s Judo Bank final services PMI reading improved to 50.5 in November from 49.6 in October, beating the estimate of 49.6.
- Fed Chair Jerome Powell said Wednesday that the U.S. economy is stronger now than the U.S. central bank had expected in September when it began cutting interest rates, which It allows Fed officials to potentially slow the pace of interest rate cuts in the future.
- The US ISM services PMI fell to 52.1 in November from 56.0 in October. This reading was weaker than expected at 55.5.
- The US S&P Global Composite PMI fell to 54.9 in November from 55.3 previously. Meanwhile, the services PMI fell to 56.1 in November from 57.0 in the previous reading. Both figures were weaker than estimated.
- San Francisco Fed President Mary Daly signaled Wednesday that the U.S. central bank does not need to be urgent on rate cuts, adding that the Fed has more work ahead to achieve inflation of 2 % and lasting growth.
AUD/USD bearish momentum on daily chart remains intact
The Australian dollar is trading lower on the day. The negative outlook for the AUD/USD pair remains in place, characterized by the price remaining below the 100-day exponential moving average (EMA) on the daily time frame. The 14-day Relative Strength Index (RSI) is trading below the 50 midline near 37.70, supporting the pair’s downward movement in the near term.
Sustained bearish momentum below 0.6325 could attract enough sellers towards 0.6285, the October 3, 2023 low. Any additional selling could see a drop to the psychological mark of 0.6200.
To the upside, any sustained buying above the upper boundary of the trend channel at 0.6512 could pave the way towards 0.6626, the 100-day EMA. Consistent trading above the mentioned level could pave the way towards 0.6687, the November 7 high.
The 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.
