- The US dollar recovers amid the conflict in the Middle East.
- US NFP data last week tempered aggressive easing bets on the Fed.
- The minutes of the Reserve Bank of Australia’s September monetary policy meeting could stop the bleeding.
The AUD/USD pair fell 0.50% to 0.6765 on Monday, pressured by a stronger US dollar and concerns over geopolitical tensions in the Middle East.
The Australian economy faces an uncertain future amid mixed economic signals. Despite healthy employment levels and strong consumer spending, inflation remains stubbornly high. The Reserve Bank of Australia (RBA) has taken a cautious approach. This week’s minutes will be closely followed.
Daily Market Summary: Australian Dollar Falls, US Dollar Gains Ground Ahead of Strenuous Week
- The AUD fell amid tensions in the Middle East, putting pressure on risk-sensitive currencies due to rising oil prices.
- The USD strengthened with the DXY near 102.00, buoyed by strong US Nonfarm Payrolls data and tapering easing bets on the Fed.
- The probability of a 50 basis point cut in November or December has dropped to zero, while only a 90% chance of a 25 basis point cut next month is being considered.
- Even with robust economic data, the market is still expecting a full easing of 125 basis points over the next year.
- Fed statements and US Consumer Price Index (CPI) data will guide the pair’s trajectory this week.
AUD/USD Technical Outlook: Pair extends losses, 20-day SMA disappears
AUD/USD extends its losses, and indicators are weak with the Relative Strength Index (RSI) and Moving Average Convergence/Divergence (MACD) deep in negative territory. Furthermore, the loss of the 20-day SMA has worsened the outlook for the pair.
Supports are lined up at 0.6750, 0.6730 and 0.6700, while resistances are seen at 0.6800, 0.6815 and 0.6850.
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.
