- The Australian Dollar rose slightly to 0.6510 in Friday’s session.
- Gains in the Australian pair are influenced by broad-based weakness in the US Dollar.
- Australian Dollar finds support but faces pressure on China-US trade war concerns
The AUD/USD pair extends its gains for the third consecutive day on Friday, although it has trimmed a portion of its intraday gains and remains above the psychological threshold of 0.6500. The pair recently hit a multi-day high before giving back some of its intraday gains. The positive momentum in the pair is mainly influenced by the broad-based weakness of the US Dollar.
Despite showing signs of resilience and winning, the US Dollar remains under pressure against most major currencies. The US dollar’s weakness is mainly due to dovish comments from Federal Reserve Chairman Jerome Powell, who hinted at a pause in the interest rate hike cycle in the US. This has led market participants to speculate that the Fed may not raise interest rates as aggressively as previously anticipated.
Daily Market Summary: Aussie Dollar Mixed, Trade War Concerns Limit Upside
- AUD/USD maintains its uptrend for the third day in a row despite a slight pullback in intraday gains.
- The AUD/USD pair reversed early gains and is trading mixed around 0.6500 amid concerns over the US-China trade war.
- The US is set to unveil new AI chip sanctions against China as soon as Monday, which is weighing on the AUD/USD due to the risk-off sentiment in the market.
- This week, the AUD has gained support due to USD weakness, despite mixed economic data from Australia and a hawkish stance from the Reserve Bank of Australia.
AUD/USD Technical Outlook: Outlook improves as bulls gain momentum, indicators point to more gains ahead
The AUD/USD pair continued to gain ground and approached the 20-day SMA, but faced rejection. However, the outlook remains positive as bullish momentum continues to build.
The AUD/USD pair is likely to find support at the 20-day SMA and the ascending trend line from the August low. To the upside, immediate resistance is at the 50-day SMA and the round figure of 0.6600. A break above this resistance area could lead to further gains towards the 0.6700 mark.
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.
