- AUD falls on Thursday, continuing its losing streak below 0.6200.
- Slower retail sales in Australia fuel bets on an RBA rate cut.
- China’s weak CPI reduces prospects for the Australian dollar.
AUD/USD falls near 0.6170 as the US Dollar performs strongly on persistent inflation expectations in the US on Thursday. The Australian Dollar was a weak performer due to subdued local data and weak inflation data from China. Investors now look to the US Non-Farm Payrolls (NFP) for clues on the Federal Reserve’s (Fed) future rate actions.
Daily Market Summary: Australian Dollar Weak as Markets Await Fed Guidance
- Investors hope US President-elect Donald Trump’s pro-growth and inflationary policies will keep the Federal Reserve leaning toward a hawkish stance.
- Minutes from the December Federal Open Market Committee meeting reveal that Fed officials are concerned about a slowdown in disinflation, citing possible changes to trade and immigration policies.
- Market participants await the release of US Non-Farm Payrolls (NFP) on Friday for fresh clues on the central bank’s next monetary policy steps.
- On the data front, Australian retail sales grew 0.8% in November, below the 1% forecast but up from 0.5% previously, raising dovish bets on the RBA.
- Traders have fully priced in a 25 basis point rate cut from the RBA for the April meeting, putting pressure on the Australian dollar.
- China’s annual CPI for December rose 0.1%, down from 0.2% previously, raising concerns about the AUD’s role as a proxy for Chinese growth.
AUD/USD Technical Outlook: Bears Regain Control as Key SMA Limits Recovery
AUD/USD fell 0.34% on Thursday, extending its losing streak for the third day in a row. The Relative Strength Index (RSI) sits at 35, moving deeper into negative territory, while the Moving Average Convergence/Divergence (MACD) histogram shows decreasing green bars.
The bears have invalidated the latest bullish rally attempt, and unless the pair breaks above its 20-day SMA, the outlook will likely remain tilted to the downside.
Supports: 0.6150, 0.6130, 0.6100.
Resistances: 0.6200, 0.6215, 0.6250.
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.
