AUD/USD rises above 0.6500 following domestic data, US-China trade talks eyed
- AUD/USD gains ground following the release of domestic mid-tier economic data on Wednesday.
- US Treasury Secretary Bessent and Trade Representative Greer are set to meet with Chinese Vice Premier He Lifeng in Geneva.
- The Fed is expected to hold rates steady later in the North American session.
The AUD/USD pair continues its upward momentum for the fourth consecutive session, hovering around the 0.6510 mark during Wednesday’s Asian trading hours. The Australian Dollar (AUD) finds support from releasing domestic mid-tier economic data and improving global trade sentiment.
In April, the AiG Industry Index rose by 5.1 points to -15 on a seasonally adjusted basis, signaling modest improvement despite persistent headwinds in the industrial sector. Challenges such as global trade uncertainty, currency volatility, and the looming federal election continued to weigh on activity. Meanwhile, the AiG Manufacturing Purchasing Managers’ Index (PMI) climbed 3.0 points to -26.7, up from -29.7 in the previous month.
Sentiment toward the AUD also improved as US-China trade tensions showed signs of easing. In a significant development, US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer are set to meet with Chinese Vice Premier He Lifeng in Geneva over the weekend, marking the first high-level talks since the US imposed tariffs that escalated into a global trade dispute.
China’s Ministry of Commerce stated that, after carefully evaluating US proposals and considering global expectations, national interests, and industry feedback, Beijing has agreed to engage in the upcoming negotiations.
Looking ahead, investor attention is firmly on the Federal Reserve’s (Fed) rate decision later on Wednesday. While the Fed is widely expected to hold rates steady, markets will scrutinize comments from Fed Chair Jerome Powell for any hints of a potential pivot toward rate cuts in the near term.
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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