AUD/USD pares losses ahead of Australian trade balance figures
- AUD/USD rebounded on Wednesday, bolstered by broad-market Greenback weakness.
- Market sentiment, driven by Fed rate cut hopes, continues to drive forward.
- Australian Trade Balance data due early Thursday, followed by US ADP jobs preview numbers.
AUD/USD rebounded back into the familiar 0.6550 region on Wednesday, with the US Dollar (USD) paring back a recent bout of risk-off strength. The Australian Dollar (AUD) remains at the mercy of general market sentiment and continues to trade within a well-defined technical range against the Greenback.
Australia’s latest Trade Balance data is expected to show a contraction of goods trade in July. Net inflows and exports last clocked in at 5.365B in June, but that figure is expected to ease to 4.92B in July. Australia’s overall economy is closely linked to the Chinese economy, and the ongoing tariff spat between US President Donald Trump and the rest of the world has hampered some aspects of Chinese production, which could leak over into Australian trade data.
Australian trade data and US ADP jobs preview in the barrel
On the US side of Thursday’s data docket, US ADP Employment Change figures from August, as well as the ISM’s latest Purchasing Managers Index (PMI). ADP Employment Change data has a tenuous relationship with Friday’s upcoming Nonfarm Payrolls (NFP) official jobs data release, and has performed poorly as a preview of the final NFP figure, but investors still tend to keep an eye on ADP advance numbers for any potential major shifts underfoot. ISM’s Services PMI is expected to show a general improvement in firms’ economic outlook heading into the fourth quarter.
AUD/USD daily chart
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
Joshua Gibson
FXStreet
Joshua joins the FXStreet team as an Economics and Finance double major from Vancouver Island University with twelve years' experience as an independent trader focusing on technical analysis.
