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Australian Dollar recovers on positive market sentiment


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  • Australian Dollar rises against the US Dollar on Monday after sentiment turns positive supporting commodity currencies. 
  • Data from S&P Global shows US Composite PMI is higher – and in expansionary territory – compared to Aussie correlates.
  • Concerns regarding the impact of interest rates on the Australian housing market as well as China’s lackluster growth cap AUD.  

The Australian Dollar (AUD) reverses and makes gains against the US Dollar (USD) on Monday, after sentiment turns positive, supporting commodity currencies such as the Aussie more than safe-havens like the Buck.

The Australian Dollar makes up losses suffered in the wake of data from ratings agency S&P Global which showed purchasing managers in the US in key sectors – but especially manufacturing – held a more optimistic outlook for the future compared to those in Australia. 

The AUD/USD pair trades in the 0.67s during the US session.  

Australian Dollar news and market movers 

  • The Australian Dollar edges higher on the back of positive market sentiment which fosters a risk-on mood conducive to the Aussie. The Dow Jones Industrial Average (DJIA) is up over 0.5%, the S&P 500 by a similar amount and the Nasdaq by roughly 0.25% during the US session, reflecting the positive market mood. The US Dollar, in comparison, suffers due to its status as a safe haven. 
  • The Australian Dollar had edged lower after the release of S&P Global PMIs showed comparatively better results for the US than Australia, supporting the USD more than the AUD. 
  • Preliminary S&P Global US Manufacturing PMI data actually came out higher than expected at 49, beating estimates of 46.4 and a previous result of 46.3 in June – though still in contractionary territory (below 50). 
  • US S&P Global Composite PMI was also higher at 52, and in expansionary territory compared to Australian Composite PMI, which came out at 48.3 for the same period. 
  • The Australian Dollar is expected to face headwinds as inflation is predicted to fall, reducing pressure on the Reserve Bank of Australia (RBA) to raise interest rates to bring inflation under control. 
  • Since lower interest rates attract less foreign capital inflows they tend to have a negative impact on currencies. 
  • Quarterly inflation figures for Australia are out on Wednesday, July 26, and likely to provide invaluable intelligence for Australian Dollar traders attempting to model the future course of interest rates in Australia. 
  • The Consumer Price Index (CPI) for Australia in the second quarter is estimated to show a 6.2% rise YoY compared to the 7.0% in Q1. On a QoQ basis, it is forecast to show a 1.0% rise versus the 1.4% increase in Q1. 
  • The RBA’s preferred gauge of inflation, the RBA Trimmed Mean CPI, measured quarterly, is out on Wednesday, July 26, at 01:30 GMT. The data is forecast to show a 6.0% rise in Q2 YoY versus the 6.6% of Q1.QoQ it is estimated to show a 1.1% rise, which is below the 1.2% rise in Q1. CPI could be a key driver for the Aussie in the short term. If CPI is lower than expected, it will weigh on AUD and if higher, it will support AUD. 
  • Strong Australian labor market data may influence the inflation figures resulting in higher-than-anticipated results. If that is the case, then the AUD may gain after the release of the CPI data. 
  • The Aussie has weakened on skepticism over China, its largest trading partner’s growth, after the country’s lackluster Q2 GDP readings. 
  • The Federal Reserve’s (Fed) interest rate decision at 18:00 GMT on Wednesday could also impact the AUD/USD pair by way of influencing the US Dollar. 
  • The Fed is already expected to raise interest rates by 0.25%, however, the wording of its accompanying statement may impact the US Dollar. 
  • A more hawkish commentary will come as a surprise as the market is not pricing in further rate hikes from the Fed. As such it would strengthen the US Dollar and weigh on the AUD/USD pair. 
  • The opposite is true if the Fed indicates it may have reached peak rate or even talks about possibly bringing rates down in 2024. 
  • There exists a high risk that the RBA will have to cut rates from their current 4.1% level in 2024 because the Australian house market is dominated by variable-rate mortgages so it is more sensitive to changes in interest rates, and homeowners have recently been adversely affected by higher mortgage interest repayments, according to Bloomberg Intelligence, as quoted by Financial Review. 
  • In comparison, the RBA’s Cash Rate is 4.1%, which is below the Fed’s 5.25% (likely to be 5.50% after Wednesday), thus overall favoring capital flows to the Greenback versus the Aussie.   

Australian Dollar Technical Analysis: Underpinned by confluence of support 

AUD/USD is in a sideways trend on both the long and medium-term charts. The February 2023 high at 0.7158 is a key hurdle on the weekly chart, which if vaulted, will alter the outlook to one that is more bullishly biased. 

Likewise, the 0.6458 low established in June is a key level for bears, which if breached decisively, would give the chart a more bearish overtone. 

Australian Dollar vs US Dollar: Weekly Chart

A confluence of support made up of all the major daily simple moving averages (50, 100 and 200) exists in the upper 0.66s and early 0.67s. This is expected to provide a rigid cordon of support that will make it difficult for bears to push the exchange rate much lower from its level at the time of writing.  

Australian Dollar vs US Dollar: Daily Chart

Only a decisive break below the 50 and 100-day Simple Moving Averages (SMA) would confirm a continuation of the recent bear move lower to a speculative target at the June and July lows in the mid-0.64s. 

A decisive break lower could consist in a long red daily candlestick, which pierces cleanly below the support levels identified and then closes near to the low of the day, or three red down days in a row that break below the support confluence, with the final day closing near its low and a decent distance below the lowest MA. 

There exists the potential for a recovery from the current level, given the underpinning support from the three MAs, however, so far there are no signs of a reversal. Such a sign might come in the form of a candlestick reversal pattern or bullish convergence with the Relative Strength Indicator (RSI) – yet given their absence, it is too early to call a bullish turnaround. 

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.