AUD/USD Price Forecasts: Aussie is clinging to the 0.6600 support area
- The Aussie Dollar ticks up against the USD following a five-day sell-off.
- Weak Employment figures and higher inflation expectations in Australia ight pose a challenge for the RBA.
- The US Dollar appreciates across the board ahead of US inflation data.
The Australian Dollar is trading practically flat against the Greenback on Thursday, attempting to hold above a support area right below the 0.6600 line, to put an end to a five-day losing streak, after peaking at 0.6679 on December 10.
Recent data from Australia showed that demand for employment declined in November, and consumer confidence deteriorated while inflation expectations grew substantially. All in all, a context posing troubles for the RBA to set its monetary policy.
The US Dollar, on the contrary, has been posting a moderate recovery over the last two days, with investors awaiting the release of the US Consumer Price Index (CPI) data, due later today, for a better assessment of the Federal Reserve’s monetary policy path.
Technical Analysis: The Aussie looks likely to extend its correction
The technical picture remains bearish, with the pair correcting lower after a 4% rally from mid-November lows. The 4-hour chart shows the AUD/USD trading at 0.6607, little changed on the daily chart, with indicators pointing lower. The Moving Average Convergence Divergence (MACD) remains below the zero line with negative readings, suggesting fading bearish pressure, while the Relative Strength Index (RSI) is recovering from oversold, but still at 38, significantly below the 50 midline.
Aussie sellers have taken a breather at 0.8593, right above 38.2% Fibonacci retracement of the November-December rally, although upside attempts remain frail so far. Further down, the November 30 and December 1 lows, near 0.6540, would come into focus, ahead of the 61.8% Fibonacci retracement of the mentioned range, near 0.6520.
Bulls, on the other hand, are likely to find resistance at the 0.6620 previous support area (December 16 lows). A confirmation above that level would bring the December 16 high, at 0.6661, and the December 11 high, at 0.6685, into focus.
(The technical analysis of this story was written with the help of an AI tool)
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.
Recommended Articles
