- AUD/USD rises amid RBA’s hawkish stance and US election uncertainty
- The dollar weakens on speculation of a Kamala Harris victory and bets on a moderate rate cut by the Fed.
- US nonfarm payrolls disappointed, missing estimates and raising questions about the Fed’s aggressive rate cut path.
AUD/USD rose on Monday, rising 0.70% to 0.6600 amid expectations of a hawkish monetary policy decision from the Reserve Bank of Australia (RBA) and uncertainty surrounding the presidential election from USA
Recently, the AUD/USD has declined due to a recovery in the Dollar and concerns about China’s economy. The RBA is expected to maintain a hawkish stance, supporting the AUD in the long term. Market expectations for an RBA rate cut are low, while investors are confident of interest rate cuts by the Federal Reserve (Fed) later this week and again in December.
Daily Market Summary: Australian Dollar Rises With US Elections Nearby
- The US dollar (USD) fell on Monday as polls suggested a tight race between Vice President Kamala Harris and former President Donald Trump in Iowa.
- A Trump victory could boost the USD due to expected protectionist policies and higher inflation.
- A Harris victory would likely continue current policies, benefiting riskier currencies.
- The Fed is expected to cut interest rates by 25 basis points (bps) on Thursday, weighing on the USD.
- On the other hand, the RBA is expected to keep interest rates stable.
- The RBA’s outlook on economic activity and inflation will also be closely watched, with recent Australian reports showing mixed signals but with inflation still above the bank’s target.
AUD/USD Technical Outlook: Bullish Signs Emerging, Pair Might Have Bottomed
The Relative Strength Index (RSI) is in the negative area at 41, but the slope of the RSI is rising sharply, suggesting that buying pressure is increasing. On the other hand, the MACD is flat and in the red, indicating that selling pressure is decreasing.
The AUD/USD pair has resumed its upward trajectory, driven by a recovery in technical indicators from oversold levels. This recovery suggests that the recent sell-off may have been excessive and that buyers are re-entering the market. The pair had previously hit its lowest point since August, indicating that the downtrend may be losing momentum.
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.
