AUD/USD appreciates to near 0.6550 following MI Inflation Gauge, China’s NBS PMI data
- AUD/USD edges higher as TD-MI Inflation Gauge rose 0.1% MoM in June, against a 0.4% previous decline.
- China’s NBS Manufacturing PMI climbed to 49.7, while the Non-Manufacturing PMI increased to 50.5 in June.
- The US Dollar may struggle due to the rising odds of the Fed delivering a rate cut in September.
AUD/USD gains ground after registering losses in the previous session, trading around 0.6540 during the Asian hours on Monday. The pair remains stronger following the release of economic data from Australia.
TD-MI Inflation Gauge edged up 0.1% month-over-month in June, reversing a 0.4% previous decline. The rise came even as both headline and underlying inflation continued to ease within the Reserve Bank of Australia’s (RBA) 2–3% target range.
Australia's Private Sector Credit climbed to 0.5% month-over-month in May, against the market expectations and the prior month's 0.7% rise. The slowdown was primarily due to a deceleration in business loans, which eased to 0.8% from 1% in April.
In Australia’s close trading partner, China, NBS Manufacturing Purchasing Managers' Index (PMI) advanced to 49.7 in June, compared with 49.5 in May. The data came in line with the market consensus in the reported month. The NBS Non-Manufacturing PMI rose to 50.5 in June versus May’s 50.3 and the expected 50.3 reading.
The AUD/USD pair also draws support from the subdued US Dollar (USD), driven by the increasing odds of the Federal Reserve’s (Fed) cutting interest rates at the September meeting. Data showed on Friday that US Personal Spending unexpectedly fell in May, the second decline this year. Meanwhile, US Personal income dropped by 0.4% in May, the largest decrease since September 2021.
Traders await key US labor data scheduled to be released later in the week to gain a further idea of the US Federal Reserve’s (Fed) policy outlook. The Nonfarm Payrolls (NFP) is expected to show 110,000 new jobs added, down from 135,000 in May. Markets currently estimate the range between a high of 140,000 and a low of 75,000. Moreover, Unemployment is anticipated to tick higher to 4.3% from 4.2%.
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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