Australian Dollar remains subdued following China’s Trade Balance data
- Australian Dollar moves little even as China’s trade surplus widened to $213.62B in February from $114.1B previously.
- Australia’s Westpac Consumer Confidence rose 1.2% in March, reversing February’s 2.6% drop.
- The US Dollar eased as safe-haven demand eased after President Trump said the Iran war could end very soon.
AUD/USD inches lower after two days of gains, trading around 0.7060 during the Asian hours on Tuesday. The pair holds losses as the Australian Dollar (AUD) moves little following the release of China’s Trade Balance data, which reported a trade surplus of $213.62B in February, exceeding the market expectations of $179.6B and $114.1B prior. However, the trade surplus in terms of Chinese Yuan (CNY) declined to CNY 637.5B in February, from CNY 808.8B in January. The market expectations were CNY 950B
Westpac Consumer Confidence rose 1.2% in March, reversing a 2.6% decline in the previous month and marking the first increase since last November. Meanwhile, National Australia Bank’s (NAB) Business Confidence fell sharply to -1 in February from 4 in the prior month, the first negative reading since April last year. However, NAB Business Conditions remained steady at 7.
The Australian Dollar gained support as Australia’s 10-year government bond yield climbed to around 5.0% on Monday, its highest level since July 2011, as escalating tensions in the Middle East pushed energy prices higher and fueled inflation concerns. Rising inflation worries could prompt the Reserve Bank of Australia (RBA) to adopt a more hawkish policy stance.
The RBA Governor Michele Bullock said last week the central bank is “very alert” to the conflict’s potential impact on inflation expectations and stands ready to raise interest rates if necessary.
The AUD/USD pair holds losses as the US Dollar inches higher after a sharp intraday drop in the previous session. The Greenback depreciated as safe-haven demand reduced on hopes for a quick resolution to the Iran conflict. US President Donald Trump said the war with Iran could be resolved “very soon,” as he faces mounting economic and political pressure after days of sharp volatility in Oil markets.
Traders are awaiting key US inflation data, including the Consumer Price Index (CPI) and the Personal Consumption Expenditures (PCE) Price Index, due later this week for fresh signals on the Federal Reserve’s policy outlook.
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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