Australian Dollar under pressure as global trade and economic uncertainties persist
- The US Dollar holds steady as global trade negotiations remain in focus.
- The PBoC continues Gold purchases, signaling long-term interest.
- Chinese Copper production expands, reducing reliance on imports.
The Australian Dollar (AUD) remains under pressure as global trade uncertainties persist, particularly surrounding the US-China trade talks. While there has been a slight rebound in copper production from China, trade deals and economic policies continue to impact sentiment in the market, with limited positive moves for the Aussie.
Daily digest market movers: Aussie steady ahead of trade talks
- The US Dollar (USD) holds steady as the market reacts to trade deal uncertainties and key upcoming data.
- Copper production in China continues to expand, potentially reducing future copper imports.
- Gold purchases by the People's Bank of China (PBoC) have slowed, although purchases remain robust.
- The US Dollar Index (DXY) remains near 100.30, showing signs of resistance despite trade deal headlines.
- Trade talks between the US and China are scheduled for the weekend, raising hopes but also cautious expectations.
- Despite a positive market reaction to the potential US-UK trade deal, the UK’s 10% tariff remains in place.
- China's crude oil imports increased, signaling continued demand despite global uncertainties.
- Chile's largest copper producer has raised its output, somewhat easing fears of a global shortage.
- The PBoC’s Gold purchases rose by 70 thousand ounces, continuing their long-term strategy.
- US Federal Reserve officials remain cautious, with no immediate interest rate cuts expected despite global trade tensions.
- China's economic outlook weighs heavily on commodity-linked currencies, including the Australian Dollar.
- While China is expanding its domestic copper production, it could still face challenges from ongoing global supply issues.
- Oil markets are tightening, with concerns about future import volumes, particularly from Iran.
Technical Analysis
The Australian Dollar is currently trading around 0.6400, up 0.30% on the day. The Relative Strength Index (RSI) at 54.85 suggests a neutral momentum, while the Moving Average Convergence Divergence (MACD) indicates a sell signal. Short-term moving averages, including the 20-day Simple Moving Average (SMA) at 0.6401, suggest a bullish outlook, supported by the 100-day SMA at 0.6289 and the 10-day Exponential Moving Average (EMA) at 0.6419. However, the 200-day SMA at 0.6460 indicates a bearish trend. Key support levels are at 0.6419, 0.6413, and 0.6401, with resistance at 0.6425, 0.6431, and 0.6460.
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.