AUD/USD gains ground to near 0.6500 ahead of Chinese CPI inflation data
- AUD/USD attracts some buyers to near 0.6500 in Monday’s early Asian session.
- US Nonfarm Payrolls rose by 139,000 in May, stronger than expected.
- China’s CPI inflation for May will be in the spotlight later on Monday.
The AUD/USD pair edges higher to around 0.6500 during the early Asian session on Monday. The Australian Dollar (AUD) strengthens against the US Dollar (USD) after US President Donald Trump said that the United States (US) will hold trade talks with China on Monday.
Trump stated on Friday that US Treasury Secretary Scott Bessent and two other Trump administration officials are scheduled to talk with Chinese officials in London on Monday. The trade talks come as the US and China have argued over numerous issues amid an escalating trade war. However, the hope of potential trade negotiations between the world’s two largest economies provides some support to the China-proxy Aussie, as China is a major trading partner of Australia.
On the other hand, stronger-than-expected US economic data could boost the Greenback and act as a headwind for a pair. Data released by the US Bureau of Labor Statistics (BLS) on Friday showed that the Nonfarm Payrolls (NFP) in the US rose by 139K in May, followed by the 147K increase (revised from 177K) seen in April. This reading came in better than the market expectation of 130K.
Meanwhile, the Unemployment Rate held steady at 4.2% in May, as expected. Annual wage inflation, as measured by the change in the Average Hourly Earnings, steadied at 3.9% in May, beating the estimation of 3.7%.
Traders brace for China’s Consumer Price Index (CPI) inflation and Trade Balance reports for May, which will be published later on Monday. If the data shows that inflation in China eases, this could drag the AUD lower against the USD 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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