AUD/USD extends gains, approaching 0.6540 highs on risk appetite
- The Aussie Dollar is on track for a nearly 1% weekly gain, boosted by a positive market mood.
- Upbeat Chinese exports data seen this week are underpinning demand for the AUD.
- The US Dollar remains stuck near lows with traders awaiting replacements for the Fed's vacancies.
The Aussie Dollar remains outperforming its peers on Friday, fuelled by a moderate risk appetite. The pair has reversed a previous decline and is trading higher for the fourth consecutive day, approaching weekly highs at 0.6530 and on track to a nearly 1% rally this week.
Investors are still celebrating the strong export figures from China released on Thursday. China’s exporting activity increased 8% in July after a 7.2% rise in June, and the trade surplus widened to CNY 705.1 billion from CNY 585,96 billion in the previous month.
These figures suggest that the Asian leading economy is weathering Trump’s tariffs, and has improved confidence in the country’s economic outlook, contributing to buoy the market mood.
Rumours about changes in the Fed keep weighing on the USD
The US Dollar, on the other side, remains steady near lows, with traders wary of placing large US Dollar bets amid rumours of replacements in the Federal Reserve. Speculation about Governor Waller replacing Trump and economic adviser Miran filling Kugler’s vacancy at the Board feeds investors’ hopes of further rate cuts in the next months.
U.S. jobless Claims figures released on Thursday added to the evidence of a weakening labour market. Claims for unemployment benefits increased by 8,000 to 226,000, instead of the 221,000 forecasted by market analysts.
Later on Thursday, St Louis Fed Governor Raphael Bostic curbed hopes of rate cur¡ts in September, warning about the potential impact of Tariffs, but markets are still pricing neary 90% chances that the central bank will ease uts monetary policy after the summer.
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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