- AUD extends gains after RBA’s hawkish hold.
- Governor Bullock affirmed no immediate need for rate cuts.
- Investors digest Trade Balance data from China.
The AUD/USD pair is currently trading around 0.6555, up by 0.50% on Wednesday. The Australian Dollar continues to gain strength from the Reserve Bank of Australia (RBA) holding rates steady on Tuesday. Governor Bullock maintained that there is no pressing need to cut rates, securing the Australian Dollar’s position.
Due to the mixed Australian economic outlook and the RBA’s hawkish stance, markets are now pricing just 25 bps of easing in 2024.
Daily digest market movers: AUD holds firm following RBA’s decision
- The Reserve Bank of Australia decisively held rates at 4.35%, reinforcing that “the Board is not ruling anything in or out.” The RBA also underlined the need for vigilance toward upside risks to inflation.
- The updated macro forecasts anticipate longer-lasting inflation, with trimmed mean and headline CPI inflation predicted to hit the midpoint of the 2-3% band by December 2026 as opposed to the June 2026 estimate from the May forecasts. Markets have reacted swiftly, now pricing in only 25 bps of easing by year-end.
- Governor Bullock clarified that “the Board did consider a rate rise” and that rate cuts are “not on the agenda in the near term.” She added that expectations for rate cuts are “a little ahead of themselves.”
- On the data front, China’s July Trade Balance, in terms of Chinese Yuan, was CNY601.98 billion, down from June’s CNY703.77 billion. The country’s imports rebounded by 6.6% YoY in July from -0.6% recorded in June, while exports rose by 6.5% YoY vs. 10.7% seen in June.
- It’s important to note that China is an important trade partner from Australia, and the Aussie is sensitive to Chinese data.
AUD/USD technical analysis: Bulls step in as selling pressure decelerates
The AUD/USD pair has been bearish over the past sessions, but bears seem to be taking a breather. The most immediate support and resistance seem to be around the 0.6480 and 0.6570 levels, respectively.
The Relative Strength Index (RSI) is hovering around the neutral area of the scale after hitting oversold terrain in the last sessions. However, the general decrease in value suggests a downtrend. Similarly, the Moving Average Convergence Divergence (MACD) indicator presents a series of diminishing red bars, indicating diminishing, but bearish momentum lining up with the bearish price action on the chart.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for 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 main goal of the RBA 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. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus 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, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
