The AUD/USD pair experienced a drop, adjusting to 0.6950, as a result of a USD recovery after a 2% rally in the last sessions. The narrative of monetary policy divergence between the Federal Reserve (Fed) and the Reserve Bank of Australia (RBA) has been a key factor in driving the pair. The less assertive approach toward interest rates by the Fed, coupled with the hawkish stance of the RBA, has created a push on the pair, putting the Aussie ahead of the Greenback. Despite strong Australian PMIs, the USD staged a recovery ahead of a speech from Jerome Powell. However, the persistent hawkish views of the RBA continue to support the Aussie against its peers.
The strong August PMIs in Australia, with Manufacturing rising to 48.7, Services scaling to 52.2, and the composite climbing to 51.4, paint a positive picture of the economy. This development corroborates the RBA’s hawkish policy disposition. Despite a mixed Australian economic outlook, markets anticipate minimal easing for 2024, preserving a solid stand for the Aussie in the face of softening US labor market data and S&P PMIs. The path of the pair will continue to be guided by incoming data from both countries.
Technical analysis of the AUD/USD pair suggests a persistent upward trajectory with significant volume increase reinforcing a positive outlook. The Relative Strength Index (RSI) indicates a slightly bullish sentiment and ongoing bullish pressure, while the Moving Average Convergence Divergence (MACD) aligns with this bullish tone. The pair appears to have consolidated above the 0.6700 support level, with critical resistance around the recent high of 0.6760-0.6800. Factors such as interest rates, the Chinese economy, Iron Ore prices, and Trade Balance play a crucial role in influencing the value of the Australian Dollar.
The level of interest rates set by the Reserve Bank of Australia (RBA) is a significant factor in determining the value of the Australian Dollar. The RBA influences the AUD by setting the level of interest rates that Australian banks can lend to each other, which in turn affects interest rates in the economy. The goal of the RBA is to maintain a stable inflation rate by adjusting interest rates. High interest rates compared to other central banks support the AUD, while quantitative easing and tightening can influence credit conditions.
The health of the Chinese economy, as Australia’s largest trading partner, has a major influence on the value of the Australian Dollar. Positive or negative surprises in Chinese growth data can directly impact the AUD. Iron Ore, Australia’s largest export, plays a crucial role in driving the Australian Dollar. Higher Iron Ore prices lead to an increase in demand for the currency, while lower prices have the opposite effect. Additionally, a positive Trade Balance strengthens the AUD, while a negative balance weakens it.