- AUD/USD recovered towards 0.6440 on Monday after sinking to 0.6350 on Friday.
- Improving market sentiment and hopes for Chinese stimulus boost the Australian Dollar.
- Focus shifts to the RBA’s monetary policy decision on Tuesday.
Friday’s sharp drop was triggered by the stronger-than-expected US Non-Farm Payrolls (NFP) report and growing bets on an early interest rate cut by the Reserve Bank of Australia (RBA). ). Monday’s rebound was supported by improving market sentiment and new optimism around China’s potential stimulus measures.
Friday’s US November NFP data showed a robust increase of 227,000, well above expectations, along with stable Average Hourly Earnings growth of 0.4% month-on-month. Wednesday’s US CPI data remains another key driver for AUD/USD this week.
Daily Market Summary: Australian Dollar Rebounds as China Pledges More Fiscal Support, CPI Looms
- AUD/USD gains on improving sentiment and China stimulus expectations.
- Chinese leaders announced plans for proactive fiscal and looser monetary policies to accelerate domestic consumption in 2024.
- Weak Chinese CPI data (-0.6% in November, worse than expected) highlights challenges in the recovery but reinforces stimulus speculation.
- In Australia, markets await the RBA’s monetary policy decision on Tuesday, with no changes expected to the 4.35% rate. However, comments on the easing schedule will be key to the direction of the Australian Dollar.
AUD/USD Technical Outlook: Recovery tests resistance near 0.6440
The AUD/USD pair remains in a downtrend but showed signs of recovery on Monday, breaking above the 0.6400 level. The Relative Strength Index (RSI), a momentum indicator, rebounded towards its midline but remains in negative territory, suggesting persistent selling pressure. Meanwhile, the Moving Average Convergence/Divergence (MACD) indicator printed a green bar for the first time in days, indicating a possible change in momentum.
Immediate resistance is seen at 0.6445, followed by 0.6480. Support lies at Friday’s low of 0.6350. The pair’s next moves will largely depend on the RBA decision on Tuesday and the US CPI release on Wednesday, both events that are likely to provide significant direction.
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.
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