- AUD/USD scales higher for the third straight day and touches a fresh multi-week top on Monday.
- Fed rate cut bets, along with the RBA’s hawkish stance, remain supportive of the strong move up.
- The technical setup favors bullish traders and supports prospects for a further appreciating move.
The AUD/USD pair sticks to its intraday gains through the early part of the European session and currently trades around the 0.6685 region, up over 0.25% for the day.
Expectations that the Federal Reserve (Fed) will start its rate-cutting cycle in September drag the US Dollar (USD) to its lowest level since January This, along with the Reserve Bank of Australia's (RBA) hawkish stance, turn out to be a key factor acting as a tailwind for the AUD/USD pair for the third successive day.
Meanwhile, technical indicators on the daily chart are holding comfortably in positive territory and are still away from being in the overbought zone. This, along with the recent breakout through the 200-day Simple Moving Average (SMA), suggests that the path of least resistance for the AUD/USD pair is to the upside
Bulls, however, need to wait for some follow-through buying beyond the 0.6700 handle before positioning for an extension of the recovery from the 0.6520-0.6515 area, or the YTD low touched earlier this month The AUD/USD pair might then climb to the 0.6745 intermediate hurdle before aiming to conquer the 0.6800 mark.
On the flip side, the Asian session low, around the 0.6650 area, is likely to act as immediate support ahead of the 0.6600 mark, or the 200-day SMA resistance breakpoint. The latter should now act as a strong base, which if broken might prompt aggressive technical selling around the AUD/USD pair and pave deeper losses.
The next relevant support is pegged near the 0.6565 area, below which the slide could extend towards the 0.6520-0.6510 region. Some follow-through selling below the 0.6500 psychological mark will suggest that the move-up witnessed over the past two weeks or so has run out of steam and shift the bias in favor of bearish traders.
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.
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