Australian Dollar maintains strength on hawkish RBA and strong data
- AUD/USD registers an additional boost, reaching 0.6610.
- RBA maintains its hawkish position, undergirding a strengthened AUD.
- Strong mid-tier data may fuel additional hawkish bets on the RBA hiking cycle.
The AUD/USD pair experienced an increase of 0.26% during Tuesday's session, settling near 0.6610, above the 100 and 200-day Simple Moving Average (SMA) convergence. The Reserve Bank of Australia's (RBA) unwavering hawkish stance and stronger mid-tier Australian economic data reported during the Asian session underpin the Aussie.
Considering the mixed Australian economic outlook and high inflation, the RBA has all the reasons to remain hawkish, which should continue benefiting the Aussie.
Daily digest market movers: Aussie finds more demand from strong confidence data
- The August Westpac consumer confidence figure came in at 85.0, beating a revised July figure of 82.7. This was the second straight improvement and the highest since February.
- Furthermore, July's NAB business confidence came up a bit short, landing at 1 against a revised June measure of 3.
- Markets are seeing strong odds of a cut by year's end, but if data continues coming in strong, investors might push the easing to 2025.
- On the US front, soft Producer Price Index (PPI) fueled USD weakness, which also favoured the pair’s upside.
AUD/USD technical outlook: Pair consolidates near significant resistance around 0.6610
The Relative Strength Index (RSI) hovers slightly above the neutral zone at 53, indicating a slightly bullish streak. The Moving Average Convergence Divergence (MACD) presents rising green bars.
This points out that the recent bullish recovery is taking shape, but the confirmation will be if the pair manages to consolidate above the 100 and 200-day SMA convergence near 0.6610. Support to the downside line up at 0.6600, 0.6580 and 0.6560.
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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