Australian Dollar strengthens on RBA hike odds
- Strong Q2 GDP boosts expectations for an RBA rate hike, with November fully priced in.
- Fed Waller's dovish remarks drop September US rate hike odds to 50.2%.
- Traders await US Nonfarm Payrolls, expected to add 56,000 jobs with 4.1% Unemployment.
AUD/USD extends its gains for the third successive day, trading around 0.7210 during the Asian hours on Friday. The currency pair is gaining upward momentum as the Australian Dollar (AUD) finds firm support in robust economic growth data, which has heightened expectations of an imminent interest rate hike.
Australia's economy proved surprisingly resilient in the second quarter, reinforcing the belief that the Reserve Bank of Australia (RBA) may resume monetary tightening following three rate increases earlier this year. Consequently, market probabilities for a rate hike this month rose to 58% from 49% before the GDP release, with a rate adjustment to 4.60% now fully priced in for November.
Australia trade surplus narrows as June data revised higher
Rabobank notes that the July trade figures for Australia, released on Thursday, showed a "small but expected reduction in the monthly trade surplus," accompanied by "an upward revision to June’s figure." The bank highlights that the combination of a modestly narrower surplus in July and stronger revised data for June will be closely watched for what it implies about the trajectory of Australia’s external balances.
Conversely, the US Dollar (USD) faces pressure after Federal Reserve Governor Christopher Waller indicated a preference for holding interest rates steady at the upcoming September meeting, assuming upcoming inflation data delivers no major surprises. Waller's dovish comments provided a notable contrast to the hawkish tone set by Chairman Kevin Warsh the previous week. Following these remarks, the CME FedWatch tool showed the market-implied probability of a Fed rate hike in September dropping to 50.2%, down sharply from 63.2% just a day earlier.
Market participants are now turning their attention to the upcoming release of the US August employment report for further directional cues. Current projections estimate that Nonfarm Payrolls (NFP) will increase by 56,000, while the Unemployment Rate is expected to hold steady at 4.1%.
Technical Analysis: AUD/USD holds above moving averages
In the daily chart, AUD/USD trades at 0.7212, maintaining a constructive bullish tone as it holds above both the nine-period and 50-period Exponential Moving Averages (EMAs). The alignment of the shorter EMA above the longer one suggests a sustained upward bias, while the 14-day Relative Strength Index (RSI) near 67 keeps the pair in positive territory without yet signaling extreme overbought conditions, hinting that upside momentum remains intact for now.
On the downside, initial support is seen at the 9-period EMA around 0.7173, with the 50-period EMA near 0.7085 offering a deeper dynamic floor if a corrective pullback develops. Below there, a more distant horizontal support level emerges at 0.6667, which would only come into focus if the current bullish structure meaningfully unwinds.
(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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