- AUD/USD is showing an increase on Thursday, rising to 0.6630.
- The RBA maintains its hawkish stance, potentially offsetting the decline.
- Rising unemployment rate in Australia could weigh on the performance of the Australian Dollar.
The pair AUD/USD The Australian dollar experienced a 0.45% increase during Thursday’s session, settling near 0.6630. Despite the rise in the unemployment rate in Australia in July, the country’s strong labour market figures can potentially support the AUD. Moreover, the Reserve Bank of Australia’s (RBA) hawkish stance also has a significant impact on the stability of the Australian Dollar.
Based on Australia’s mixed economic outlook and rising inflation, the RBA’s continued hawkish stance has led markets to predict only a 25 basis point rate cut by 2024.
Daily Market Wrap: AUD sees improvement, shrugs off unemployment figures
- Thursday was a positive day for the AUD/USD pair, even as the unemployment rate rose from 4.1% to 4.2%, according to the Australian Bureau of Statistics (ABS).
- Despite this, Australia’s strong employment change performance and better-than-expected full-time employment results helped support the AUD.
- Meanwhile, the RBA continues to maintain its hawkish stance, and looks set to become the last among G10 central banks to implement interest rate cuts.
- In contrast, the Federal Reserve (Fed) appears poised to ease further for the foreseeable future, a disparity that could benefit the AUD/USD pair in the coming months.
AUD/USD Technical Outlook: AUD/USD Traders Show Resilience, Outlook Remains Hopeful
On the technical front, the AUD/USD pair is reflecting a degree of volatility with the RSI hovering around 54, indicating mostly neutral momentum. Meanwhile, the MACD is displaying flat green bars, contributing to a neutral to bullish outlook.
Key support levels are spotted at 0.6560 and 0.6500, while resistance appears near the 0.6640 and 0.6600 regions. The latter represents the convergence of the 100-day and 200-day simple moving average (SMA), which is acting as a strong support in the recent sessions.
The Australian Dollar
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 data, 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.
