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Australian Dollar steadies as US Dollar remains stronger ahead of US-China discussions

  • The Australian Dollar remains subdued as the US Dollar receives support from trade optimism.
  • US-China trade talks are set to resume on Tuesday.
  • The RBA is expected to monitor the June labor force data and second-quarter inflation figures closely.

The Australian Dollar (AUD) moves little after registering losses in the previous three consecutive sessions, trading around 0.6520 during the Asian hours on Tuesday. The pair faced challenges as the US Dollar (USD) rose on the trade deal between the United States (US) and the European Union (EU).

The US and EU reached a framework trade agreement on Sunday that sets 15% tariffs on most European goods, taking effect on August 1. This deal has ended a months-long stand-off, per Bloomberg.

Traders keep their eyes on further developments in the US-China trade talks. The discussions are set to resume on Tuesday after top economic officials from both nations held over five hours of negotiations in Stockholm on Monday. The purpose of this meeting is to resolve ongoing disputes and extend their trade truce by another three months.

US Treasury Chief Scott Bessent met with China’s Vice Premier He Lifeng at Sweden’s Rosenbad government offices. The meeting comes ahead of an August 12 deadline to finalize a long-term tariff agreement with the Trump administration, building on preliminary deals reached in May and June that had helped ease tensions.

The US Federal Reserve (Fed) is widely expected to keep the benchmark interest rate steady between 4.25% and 4.50% at its July meeting. The FOMC press conference will be observed for any signs that rate cuts may start in September.

The Reserve Bank of Australia (RBA) is expected to closely watch the June labor force data and second-quarter inflation figures before deciding on a potential rate cut. Both the monthly and quarterly CPI reports are scheduled for release later this week.

Australian Dollar moves below nine-day EMA

The AUD/USD pair is trading around 0.6520 on Tuesday. The daily chart’s technical analysis indicates a prevailing bullish bias as the pair remains within the ascending channel pattern. However, the 14-day Relative Strength Index (RSI) has moved below the 50 mark, indicating that a bearish bias is active. Additionally, the pair is positioned below the nine-day Exponential Moving Average (EMA), indicating that short-term price momentum is weaker.

Australian Dollar PRICE Today

The table below shows the percentage change of Australian Dollar (AUD) against listed major currencies today. Australian Dollar was the strongest against the Euro.

USDEURGBPJPYCADAUDNZDCHF
USD0.07%0.06%-0.15%-0.03%-0.07%0.10%0.03%
EUR-0.07%-0.02%-0.24%-0.10%-0.13%-0.08%-0.02%
GBP-0.06%0.02%-0.24%-0.08%-0.10%-0.06%-0.02%
JPY0.15%0.24%0.24%0.11%0.07%0.17%0.29%
CAD0.03%0.10%0.08%-0.11%-0.10%0.13%0.06%
AUD0.07%0.13%0.10%-0.07%0.10%0.06%0.12%
NZD-0.10%0.08%0.06%-0.17%-0.13%-0.06%0.03%
CHF-0.03%0.02%0.02%-0.29%-0.06%-0.12%-0.03%

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change displayed in the box will represent AUD (base)/USD (quote).

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.

Author

Akhtar Faruqui

Akhtar Faruqui is a Forex Analyst based in New Delhi, India. With a keen eye for market trends and a passion for dissecting complex financial dynamics, he is dedicated to delivering accurate and insightful Forex news and analysis.

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