Australian Dollar rebounds after Friday’s plunge, investors await US CPI
- AUD/USD recovered toward 0.6440 on Monday after sinking to 0.6350 on Friday.
- Improved market sentiment and Chinese stimulus hopes boost the Aussie.
- Focus shifts to the RBA’s monetary policy decision on Tuesday.
Friday’s sharp decline was triggered by the stronger than expected US Nonfarm Payrolls (NFP) report and rising bets for an early interest rate cut by the Reserve Bank of Australia (RBA). Monday’s rebound was supported by improved market sentiment and fresh optimism surrounding potential stimulus measures from China.
US November NFP data from Friday showed a robust 227,000 gain, well above expectations, along with stable Average Hourly Earnings growth at 0.4% MoM. US CPI data on Wednesday remains as another key driver for AUD/USD this week.
Daily digest market movers: Aussie rebounds as China pledges more fiscal support, CPI looms
- AUD/USD gains on improved sentiment and stimulus expectations from China.
- China’s leaders announced plans for proactive fiscal and looser monetary policies to accelerate domestic consumption in 2024.
- Weak Chinese CPI data (-0.6% in November, worse than expected) highlights challenges in the recovery but bolsters stimulus speculation.
- In Australia, markets await the RBA’s monetary policy decision on Tuesday, with no change in the 4.35% rate expected. However, comments on easing timing will be key for the Aussie’s direction.
AUD/USD technical outlook: Recovery tests resistance near 0.6440
The AUD/USD pair remains in a bearish trend but showed signs of recovery on Monday, breaking above the 0.6400 level. The Relative Strength Index (RSI), a momentum indicator, spiked back toward its midline but remains in negative territory, suggesting lingering selling pressure. Meanwhile, the Moving Average Convergence Divergence (MACD) indicator printed a green bar for the first time in days, indicating a potential shift in momentum.
Immediate resistance is seen at 0.6445, followed by 0.6480. Support lies at Friday’s low of 0.6350. The pair’s next moves will largely depend on Tuesday’s RBA decision and Wednesday’s US CPI release, both of which are likely to provide significant direction.
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.