- AUD/USD faced renewed selling pressure at the start of the week.
- Growing skepticism over China’s latest stimulus measures contributed to the negative tone.
- A strong USD also favored the fall of the Australian dollar.
The Australian dollar fell against the US dollar on Monday following the release of weak trade data from China. AUD/USD fell 0.45% to 0.6720. The declines in the Australian dollar were largely due to growing skepticism over the effectiveness of China’s latest stimulus measures and a negative tone among traders. Furthermore, the USD continues to strengthen, which is another factor putting downward pressure on the pair.
Economic forecasts for Australia are mixed, with both positive and negative indicators. On the other hand, the Reserve Bank of Australia (RBA) has begun to adopt a somewhat more dovish stance, but financial markets anticipate a modest reduction in interest rates of just 0.25% in 2024. The short outlook Australian Dollar term will also be guided by the economic situation in China, which is a major trading partner.
Daily Market Drivers Summary: Australian Dollar Falls on Weak China Trade Data, Strong US Dollar
- The Australian Dollar fell for two consecutive days, testing the 0.6700 support level.
- The US dollar strengthened, while skepticism over China’s stimulus measures weighed on the Australian dollar.
- Copper and iron ore prices fell, contributing to the decline of the Australian dollar.
- The RBA has adopted a more dovish outlook, abandoning guidance on short-term rate stability. Market sentiment suggests a 55% chance of an RBA rate cut by the end of the year.
AUD/USD Technical Outlook: Bearish momentum prevails with support at 0.6720
The Australian Dollar weakened against the USD on Monday as the Relative Strength Index (RSI) entered the negative area at 40. The sharp decline in the RSI suggests that selling pressure is increasing. Furthermore, the MACD remains flat and in the red, indicating that selling pressure is still present and the short-term outlook is bearish. AUD/USD has been trading sideways in a tight range for the last three sessions, but the overall trend remains bearish. Support levels are at 0.6720, 0.6700 and 0.6680, while resistance levels are at 0.6760, 0.6780 and 0.6800. A break below 0.6720 could lead to a further decline in the pair.
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.
