Australian Dollar declines below 0.6959 as Trade Surplus shrinks sharply
- AUD/USD softens to near 0.6945 in Thursday’s early Asian session.
- Australia’s Trade Surplus shrinks sharply to AUD$495M in August.
- Markets see Fed October rate hike chances at 38.2%.
The AUD/USD pair trades with mild losses around 0.6945 during the early Asian session on Thursday. The Australian Dollar (AUD) edges lower against the US Dollar (USD) following Australia's Trade Balance data. Traders await the US weekly Initial Jobless Claims report and the Fedspeak later in the day.
Data released by the Bureau of Statistics on Thursday showed that Australia’s Trade Surplus narrowed sharply to AUD$495 million in August, compared to a surplus of A$1,351M in the previous reading (revised from A$1,923M).
Meanwhile, the country’s Exports rose by 3.7% MoM in August, versus a fall of 3.6% prior (revised from -3.3%). Imports climbed by 5.8% MoM in August, compared to a decline of 2.4% in the previous reading (revised from -2.5%).
On the other hand, signs of softer inflation in the US have reduced expectations for an immediate Federal Reserve (Fed) rate hike. This, in turn, could weigh on the Greenback and act as a tailwind for the pair. The headline Personal Consumption Expenditures (PCE) Price Index climbed 3.4% YoY in August after a downwardly revised 3.4% in July, below the market consensus of 3.7%.
The Core PCE, which excludes the so-called more volatile food and energy components, increased 3.0% YoY in August, versus a downwardly revised 3.0% advance in July, cooler than the 3.3% expected.
Financial markets now see about a 38.2% odds of a rate hike in October, down from about 45% before the US PCE data, according to the CME FedWatch Tool.
RBA seen on hold as Australia real estate weakness underscores lagged tightening
Commerzbank’s Volkmar Baur cautions that the impact of past RBA tightening is still working its way through the economy, stressing that “interest rate hikes always take effect with a certain time lag, and particularly with regard to the real estate market.” He points to fresh signs of strain in housing, noting that “building permits fell again in August by 6.1% compared to the previous month and prices in the largest cities continue to decline.” Against that backdrop, Baur argues that the “RBA would likely be well advised to wait and see how things develop in the coming months,” reinforcing the view that additional near-term support for the Aussie from further rate hikes may be limited.
Technical Analysis: AUD/USD remains capped under the 100-day SMA
In the daily chart, AUD/USD keeps a bearish near-term tone as spot holds beneath the 100-day simple moving average (SMA) and the Bollinger middle band. Price is only marginally above the lower Bollinger band, suggesting the pair is pressing into the lower edge of its recent range, while the Relative Strength Index (14) at 26.8 sits in oversold territory, hinting that downside momentum is stretched but not yet reversed.
On the topside, initial resistance is located at the 100-day SMA near 0.7060, with the Bollinger middle band around 0.7100 acting as a secondary cap before the upper band at 0.7272 comes into view. On the downside, immediate support is provided by the lower Bollinger band at 0.6925, and a sustained break beneath this floor would reinforce the prevailing bearish bias, exposing further losses toward lower levels not yet defined by the current indicator set.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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