- The Australian Dollar rises 0.33%, consolidating around 0.6200.
- Markets digest US PCE data for clues on monetary policy.
- The Fed is expected to keep rates steady in early 2025.
The Australian Dollar consolidates around 0.6200 on Friday as traders digest US November Personal Consumption Expenditure (PCE) inflation data. With the Federal Reserve (Fed) expecting to keep interest rates stable in the first 2025 monetary policy meeting, investors also await next week’s Reserve Bank of Australia (RBA) minutes for information on possible rate moves.
The soft US PCE figures are moderating the strength of the Dollar, offering slight support to the nascent rebound of the Australian Dollar.
Daily Market Summary: Australian Dollar Sees Mild Bounce as Markets Digest Soft PCE Data
- The US Dollar Index softened after hitting a two-year high of 108.50 as PCE data lowered inflation expectations.
- The monthly US November PCE reading was 0.1%, down from 0.2% previously.
- The annual measure rose 2.4% year-on-year, slightly below the 2.5% forecast.
- Core PCE fell to 0.1% monthly from 0.3%, with the annual figure stable at 2.8% and below the estimate of 2.9%.
- The RBA minutes due to be published on Tuesday may shed light on future policy moves after Governor Michele Bullock expressed confidence in easing wage and demand pressures.
- China’s slow growth prospects and potential US tariffs still limit the Australian Dollar’s upside, although today’s soft US data offers a brief respite.
AUD/USD Technical Outlook: Australian Dollar Finds Support as Oversold Signs Fade
AUD/USD is extending its gains for the second day in a row. The Relative Strength Index (RSI) sits near 33, bouncing from oversold territory, while the MACD histogram shows flat red bars.
Although momentum remains fragile, the pair’s modest recovery and improving technical signals suggest it could stabilize further if incoming data continues to moderate US Dollar strength.
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.
