- AUD/USD rises amid positive economic data from Australia.
- The divergence in monetary policy continues to favor the Australian dollar.
- The focus shifts to US PCE data, which may influence market expectations for Fed rate cuts in November.
The AUD/USD pair rose on Thursday, rising 0.90% to 0.6890. The Australian Dollar strengthened following the release of positive economic data and the Reserve Bank of Australia’s (RBA) hawkish stance this week. Meanwhile, the US dollar weakened as markets expect a bigger cut from the Federal Reserve (Fed) in November.
Amid a multifaceted economic outlook in Australia, the RBA’s tough stance on inflation has led markets to anticipate a modest interest rate cut of just 0.25% in 2024.
Daily Market Summary: Aussie Dollar Rises Sharply After RBA Rate Pause
- The Australian Dollar advanced significantly against the US Dollar after the RBA kept its interest rates unchanged at 4.35%, but the central bank maintained a hawkish message.
- In fact, RBA Governor Michelle Bullock stated that the bank is not considering rate cuts.
- Market participants anticipate that the Fed could implement another 50 basis point interest rate cut in November, following its initial 50 basis point reduction to 4.75%-5.00% last week.
- Investors are closely watching the upcoming release of US Personal Consumption Expenditure Price Index (PCE) data for August.
- PCE core inflation data, which is the Fed’s preferred inflation gauge, is expected to rise from 2.6% in July to 2.7%.
- A sustained rise in inflation could bolster expectations that the Fed will cut interest rates by 50 basis points in November, while a higher-than-expected reading could weaken those expectations.
AUD/USD Technical Outlook: Australian Dollar Regains Momentum After Wednesday’s Decline
After a drop to around 0.6800, the AUD/USD pair gained momentum, rising near 0.6900. Indicators, including the Relative Strength Index (RSI) and Moving Average Convergence/Divergence (MACD), suggest continued bullish momentum, and the pair could be ready to retest the area above 0.6900.
If the Australian Dollar resumes its downtrend, it could retest the 0.6800 area, which proved to be strong support. Below that level, 0.6750 and 0.6730 line up.
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.
