AUD/USD holds steady below 0.6550 as traders await Australian GDP release
- AUD/USD flat lines around 0.6540 in Tuesday’s early Asian session.
- Softer economic data from the US and further signals from Fed officials add to the rate cut optimism.
- Australian Q3 Gross Domestic Product report will be the highlight later on Wednesday.
The AUD/USD pair trades on a flat note near 0.6540 during the early Asian trading hours on Tuesday. Weaker-than-expected US economic data and rising US interest rate cut expectations in December drag the US Dollar (USD) lower against the Australian Dollar (AUD). Traders will closely monitor the Australian Gross Domestic Product (GDP) data for the third quarter (Q3), which is due on Wednesday.
A renewal in rate cut bets from the US Federal Reserve (Fed) exerted some selling pressure on the Greenback during the past week. Furthermore, the downbeat US Manufacturing Purchasing Managers Index (PMI) released on Monday might also undermine the USD and act as a tailwind for the pair. The Institute for Supply Management (ISM) revealed on Monday that the US Manufacturing PMI declined to 48.2 in November, down from 48.7 in October. This reading came in below the market consensus of 48.6.
Australia’s GDP report will be in the spotlight later on Wednesday. Economists forecast the Australian economy to grow 0.7% QoQ in the three months through September, the strongest reading since late 2022. The annual GDP is projected to expand 2.2% during the same period, supported by the RBA easing earlier this year. In case of a stronger-than-expected outcome, this could lift the Aussie against the US dollar in the near term.
On the other hand, softer Chinese economic data could weigh on the China-proxy AUD, as China is a major trading partner for Australia. Data released by RatingDog on Monday showed that China's Manufacturing PMI unexpectedly fell to 49.9 in November, versus 50.6 prior. This figure came in below the market consensus of 50.5. A reading above the 50 benchmark level suggests an expansion, while one below that indicates contraction.
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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