Australian Dollar remains depressed below mid-0.7100s vs bullish USD after Chinese data
- AUD/USD attracts some sellers for the second straight day amid a broadly firmer USD.
- China’s mixed macro data does little to impress Aussie bulls or influence spot prices.
- Traders keenly await the crucial FOMC decision on Wednesday for a fresh impetus.
The AUD/USD pair struggles to capitalize on the previous day's modest bounce from the 0.7100 neighborhood, or an over three-week low, and trades with a negative bias for the second straight day on Tuesday. Spot prices react little to China's mixed macro data and remain depressed near the 0.7130 region through the Asian session.
China's National Bureau of Statistics (NBS) reported that Retail Sales rose 0.4% YoY in August vs. a rise of 0.8% expected and a 0.6% growth recorded in the previous month. Adding to this, Fixed Asset Investment came in at -7.2% year-to-date (YTD) in August, down from -6.7% in July. Meanwhile, China's Industrial Production climbed 5.2% YoY during the reported month, up from 4.5% seen in July and surpassing consensus estimates for a reading of 4.8%.
The data, however, fails to provide any meaningful impetus to the China-proxy Australian Dollar (AUD), with a broadly firmer US Dollar (USD) turning out to be an exclusive driver of the AUD/USD pair's momentum. The USD Index (DXY), which tracks the Greenback against a basket of currencies, stands firm near a two-week high, touched on Monday, and continues to act as a headwind for the currency pair ahead of the crucial two-day FOMC meeting.
The growing acceptance that the US Federal Reserve (Fed) will hike interest rates on Wednesday, along with oil-inflation risks, remains supportive of elevated US bond yields. Apart from this, persistent geopolitical uncertainties stemming from the Middle East crisis further benefit the safe-haven Greenback. However, expectations that the Reserve Bank of Australia (RBA) will raise interest rates later this month could help limit losses for the AUD/USD pair.
AUD/USD daily chart
Technical Analysis
The AUD/USD pair is pressing just under the 23.6% Fibonacci retracement at 0.7147, which acts as the immediate upside hurdle. Spot prices, however, hold a constructive near-term bias above the 50-day Simple Moving Average (SMA) at 0.7074. The 50.0% retracement at 0.7049 could act as the next relevant support if selling pressure extends.
On the topside, a break above the 23.6% retracement at 0.7147 would open the way toward the recent swing high region around 0.7234, where stronger resistance is expected to emerge.
(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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