AUD/USD pauses ahead of Australian Retail Sales and the US ADP report
- AUD/USD pauses at wedge resistance as bulls look ahead to Australian Retail Sales.
- The US Dollar remains under pressure ahead of Wednesday’s ADP Employment Change report.
- The Australian Dollar may continue to benefit from US Dollar weakness, with resistance firming at 0.6600.
The Australian Dollar (AUD) is steady against the US Dollar (USD) on Tuesday, with AUD/USD bulls eyeing a potential breakout above 0.6600.
In the United States, concerns over fiscal and monetary policy have continued to pressure demand for the Greenback.
With AUD/USD threatening to break above the upper boundary of a rising wedge pattern, the 61.8% Fibonacci retracement level of the September-April decline continues to provide support near 0.6550.
While the formation of a Doji candle on the daily chart signals a potential pause in upside momentum, Australian Retail Sales data on Wednesday may serve as an additional catalyst for the short-term move.
AUD/USD remains conflicted ahead of Australian Retail Sales and US ADP data
Expectations are for Aussie Retail Sales to have increased by 0.3% in May after contracting by 0.1% in April. This dataset is important as it reflects consumer spending trends and provides insight into the resilience of the Australian economy. This is also monitored closely by the Reserve Bank of Australia (RBA) and influences interest rate expectations.
For the United States, Wednesday’s economic calendar brings the ADP Employment Change report for June into focus, shedding light on the employment trends of the US private sector.
As the Fed remains committed to monitoring the incoming employment and inflation data before reducing interest rates, this jobs report may influence the potential trajectory for interest rates.
On Tuesday, Federal Reserve (Fed) Chair Jerome Powell spoke at the European Central Bank (ECB) forum in Sintra, Portugal.
When questioned on the trajectory of monetary policy, Powell stated, "It's going to depend on the data, and we are going meeting by meeting. I wouldn't take any meeting off the table or put it directly on the table. It's going to depend on how the data evolves.”
These comments suggest that the Fed is not rushing to cut rates, increasing the potential for a September cut rather than one in July.
With Tuesday’s US ISM Manufacturing and JOLTS data beating expectations, resilient US data remains supportive of a more data-dependent Fed.
AUD/USD searches for a fresh catalyst as bulls head toward 0.6600
From a technical standpoint, AUD/USD is threatening a break of the rising wedge pattern with bulls eager to drive prices to psychological resistance at 0.6600.
A decisive daily close above 0.6600 could spark a push toward November’s swing high at 0.6688 and the 78.6% Fibonacci retracement of the September-April decline at 0.6722.
On the downside, initial support is marked by the 61.8% Fibo level at 0.65495, followed by the confluence of the 50-day and 200-day Exponential Moving Averages (EMAs) at 0.6458 and 0.6430, respectively.
AUD/USD daily chart
A breakdown below wedge support near 0.6470 would signal a loss of bullish momentum and potentially trigger a drop toward the 50.0% retracement at 0.6428.
The Relative Strength Index (RSI) is nearing the 61 mark, reflecting a bullish bias which is not yet indicative of overbought conditions.
This suggests that the pair may have room to move higher, if warranted by declining sentiment in the US or supportive fundamentals in Australia.
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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