AUD/USD holds steady above mid-0.6600s, close to nearly three-month peak
- AUD/USD attracts fresh buyers following Thursday’s mixed Aussie jobs data-inspired downtick.
- The RBA’s hawkish stance continues to act as a tailwind for the Aussie amid the risk-on mood.
- Bets for more rate cuts by the Fed undermine the USD and further offer support to spot prices.
The AUD/USD pair regains some positive traction following the previous day's two-way price move and holds steady above mid-0.6600s during the Asian session on Friday. Spot prices remain close to the highest level since September 17, touched on Wednesday, and seem poised to register gains for the third consecutive week amid the supportive fundamental backdrop.
The US Dollar (USD) selling bias remains unabated in the wake of dovish Federal Reserve (Fed) expectations. The US central bank projected just one more rate cut in 2026. Traders, however, are pricing in the possibility of two more rate cuts next year in the wake of Fed Chair Jerome Powell's remarks, saying that the US labor market has significant downside risks and the central bank does not want its policy to push down on job creation. This, along with the upbeat market mood, is seen undermining the safe-haven Greenback and benefiting the perceived riskier Australian Dollar (AUD).
The Aussie draws additional support from the Reserve Bank of Australia's (RBA) hawkish stance. In fact, RBA Governor Michele Bullock, following the widely expected on-hold rate decision earlier this week, said that the Board discussed what they might have to do if rates need to go up and that it looks like more rate cuts are not needed. This offsets Thursday's mixed Australian employment details and turns out to be another factor acting as a tailwind for the AUD/USD pair, backing the case for an extension of the recent strong move up witnessed over the past three weeks or so.
Moving ahead, there isn't any relevant market-moving economic data due for release from the US on Friday, leaving the USD at the mercy of speeches from influential FOMC members. Apart from this, the broader risk sentiment would drive the USD demand and produce some short-term trading opportunities around the AUD/USD pair heading into the weekend.
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.
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