AUD/USD strengthens amid mixed US data and trade optimism
- US Dollar Index (DXY) falls to 99.47 after a false break at the 100.00 level.
- Nonfarm Payrolls rise by 177,000, surpassing estimates but showing a slowdown in growth.
- The Australian Dollar strengthens, trading near 0.6430 amid easing trade tensions with China.
The AUD/USD pair sees gains on Friday, strengthening to near 0.6430 as the US Dollar softens. After a disappointing false break of the 100.00 level for the US Dollar Index (DXY), the Aussie benefits from improved sentiment surrounding US-China trade negotiations and a solid, yet slowing, jobs report in the US. While the market remains cautious, hopes for a resolution in the trade dispute between the two largest economies are providing a tailwind for the Australian Dollar.
Daily digest market movers: Trade hopes support the AUD, while US data remains mixed
- US Dollar Index retreats below 100.00, signaling waning strength after a false break.
- Nonfarm Payrolls for April show a gain of 177,000, exceeding expectations but slowing from previous months.
- Chinese officials signal openness to trade talks, boosting optimism for the US Dollar and easing trade tensions.
- The US labor market shows signs of cooling, as wage inflation remains steady at 3.8%.
- AUD/USD strengthens as markets digest improving sentiment from trade negotiations.
- US Treasury Secretary Bessent calls for Fed rate cuts, hinting at softer monetary policy ahead.
- The April NFP release sets the stage for the Federal Reserve's next policy move, with traders eyeing rate cuts.
Technical analysis: AUD/USD flashes bullish signals as it trades near 0.6500
The AUD/USD pair is showing strong bullish momentum, currently trading around 0.6500, a 1.24% gain Friday near the top of its daily range (0.6377 – 0.6469). The RSI is neutral at 61.22, suggesting balanced momentum, while the MACD confirms the buy signal.
Both the Stochastic RSI Fast (49.55) and Stochastic %K (79.58) are neutral. Moving averages continue to reinforce the bullish outlook: the 20-day SMA (0.6320), 100-day SMA (0.6282), and 200-day SMA (0.6461) are all signaling buy, along with the 10-day EMA (0.6393) and 10-day SMA (0.6399).
Key support levels are at 0.6461, 0.6413 and 0.6411, while resistance sits at 0.6500 and 0.6550.
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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