AUD/USD posts fresh highs as trade optimism and economic data boost Aussie
- The US Dollar Index weakens, dropping to 99.40 amid a Taiwan Dollar surge and easing US-China trade concerns.
- The Australian Dollar strengthens, hitting a five-month high near 0.6500, buoyed by the Labor Party’s election victory.
- ISM Services PMI rises to 51.6, reflecting positive economic activity in the US service sector.
The AUD/USD pair surged on Monday, reaching a fresh five-month high near the 0.6500 level. The Australian Dollar (AUD) benefits from a range of factors, including the US Dollar’s (USD) weakness, a solid economic report from the US and the strengthening of global risk sentiment.
The Australian Dollar’s performance also mirrors broader optimism stemming from the victory of Anthony Albanese's Labor Party in Australia’s parliamentary elections, signaling the continuation of stable economic policies. Meanwhile, ongoing trade talks, particularly between the US and China, have contributed to a shift in market sentiment.
Daily digest market movers: ISM boosts service sector, US-China trade talks weigh on USD
- The Labor Party’s victory in Australia is seen as positive for the country’s economic outlook, though uncertainties linger over US-China trade relations.
- The US Dollar Index (DXY) continues to face downward pressure, primarily due to the ripple effects of a sharp 5% surge in the Taiwan Dollar (TWD).
- The revaluation of the TWD, which is linked to expectations of a trade deal with the US, has undermined the Greenback, with key currencies like the Japanese Yen (JPY) and the Australian Dollar (AUD) benefiting from this shift.
- Meanwhile, domestic data such as the ISM Services PMI (51.6) further dampens the bearish mood surrounding the US Dollar, helping to mitigate some of its losses.
Technical Analysis: AUD/USD continues bullish run with positive indicators
The AUD/USD pair is flashing a bullish overall signal, trading around 0.6500, up 0.50% on the day, and sitting mid-range between 0.6434 and 0.6494. The Relative Strength Index (RSI) stands at 62.42, signaling neutral momentum, while the Moving Average Convergence Divergence (MACD) is giving a buy signal. The Stochastic %K reads 78.67, with the Awesome Oscillator at 0.01, both indicating neutral momentum for the time being.
Key moving averages continue to bolster the bullish outlook: the 20-day SMA (0.6344), 100-day SMA (0.6283), and 200-day SMA (0.6461) all suggest a buy signal. Additionally, the 10-day EMA (0.6406) and SMA (0.6404) are both bullish. Support levels are identified at 0.6461, 0.6435, and 0.6411, with resistance at the key psychological level of 0.6500.
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
Patricio Martín
FXStreet
Patricio is an economist from Argentina passionate about global finance and understanding the daily movements of the markets.
