Australian Dollar rises on positive Disney earnings and slowdown in US inflation

Australian Dollar rises after the market adopts a risk-on vibe following positive Disney earnings.
AUD/USD makes further gains after the release of US CPI shows a slowdown in inflaiton in July.
Embattled Aussie Dollar pushes back above 0.66 temporarily as US session gets underway.

The Australian Dollar (AUD) gets lifted up by positive sentiment on Thursday after Disney announces feel-good earnings and official data shows a slowdown in US inflation.

The US Dollar (USD) takes a hit which propels the Aussie pair higher after key US inflation data shows a slowdown in both headline and Core Consumer Price Indices (CPI) in July.

AUD/USD trades in the 0.65s during the US session.

Australian Dollar news and market movers

The Australian Dollar recovers on the back of a positive change in market sentiment after entertainment megalith Disney announces decent earnings.
The news helps mitigate the negative impact of recent lower-than-expected trade and inflation data from China, which stoked fears the country may be slowing down.
AUD/USD surges higher after the release of US CPI data for July showed a slower rise in prices than economists had forecast.
Headline CPI rose by 3.2% YoY when a 3.3% increase had been forecast. On a month-on-month basis prices rose 0.2% in July in line with expectations.
Core CPI, which is probably the more significant for FX, since central banks generally use it as a basis for decisions, rose by a lower-than-expected 4.7% YoY when 4.8% had been expected, from 4.8% in June. On a MoM basis it showed a 0.2% rise as expected.
US Initial Jobless Claims unexpectedly rise to 248K putting further pressure on the Buck – economists had been expecting a smaller 230K figure from 227K in the previous week, according to data from the Department of Labor.
Australian data out on Thursday morning showed a moderation lower in Inflation Expectations in August to 4.9% from 5.2% previously.
Longer- term influences include the fact that China is trying to diversify away from relying too heavily on Australian raw materials, according to Clifford Bennet, Chief Economist at ACY Securities – a negative for AUD.
AUD/USD could fall to as low as 0.40, according to David Llewellyn-Smith, Chief Strategist at the MB Fund and MB Super.
He likens the current market conditions to those in the 1990s, comparing China to Japan, which similarly underwent an economic boom before peaking in the 90s when the Japanese property bubble burst, bringing the good times to an end. Llewellyn-Smith foresees the same fate for China.
He further expects the US Dollar to maintain its value as the AI revolution creates a tech boom in the US, just as the dot-com bubble did in the 90s.

Australian Dollar technical analysis

AUD/USD is in a sideways trend on both the long and medium-term charts. The February high at 0.7158 is a key hurdle, which if vaulted, will give the longer-term charts a more bullish tone.

The 0.6458 low established in June is a key level for bears. If this is breached decisively, it would color the charts more bearish. Price is currently closer to this key low.

Australian Dollar vs US Dollar: Weekly Chart

Price has now broken cleanly below the confluence of moving averages (MA) close to 0.6700, made up of most of the major SMAs – the 50-week, 50-day and 100-day. The breaching of this key support and resistance level is a bearish sign.

Australian Dollar vs US Dollar: Daily Chart

AUD/USD has broken below the 0.6600 June lows, and a continuation down to the key May lows at 0.6460, is quite possible. A decisive break below them would open the way for a move down to 0.6170 and the 2022 lows.

Because the pair is in a sideways trend overall, it is unpredictable, and the probabilities do not favor either bears or bulls overall – nor is the Relative Strength Index (RSI) providing much insight on either timeframe.

For bulls, a decisive break back above the skein of MAs in the upper 0.66s and then through 0.6750 would be a prerequisite for a more optimistic outlook.

In technical terms, a ‘decisive break’ consists of a long daily candlestick, which pierces cleanly above or below the critical level in question and then closes near to the high or low of the day. It can also mean three up or down days in a row that break cleanly above or below the level, with the final day closing near its high or low and a decent distance away from the level.

Australian Dollar FAQs

What key factors drive the Australian Dollar?

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.

How do the decisions of the Reserve Bank of Australia impact the Australian Dollar?

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.

How does the health of the Chinese Economy impact the Australian Dollar?

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.

How does the price of Iron Ore impact the Australian Dollar?

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.

How does the Trade Balance impact the Australian Dollar?

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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