The Australian Dollar (AUD) has seen a resurgence against the US Dollar (USD) recently, supported by the hawkish sentiment surrounding the Reserve Bank of Australia (RBA). RBA Governor Michele Bullock’s comments last week indicated that it is too early to consider rate cuts, with the board not expecting any rate reductions in the near future. Despite softer inflation data from China, with Consumer Price Index (CPI) rising by 0.6% year-on-year in August, below market expectations, the Australian Dollar remains resilient.
RBC Capital Markets now anticipates a rate cut from the RBA at its February 2025 meeting, earlier than its previous forecast of May 2025. While inflation in Australia remains above the RBA’s target, slower economic growth is not seen as a strong enough reason for a rate cut this year. On the other hand, the US Dollar has received support from uncertainty surrounding a potential aggressive Fed rate cut in September, with markets currently expecting at least a 25 basis point cut by the Federal Reserve.
Recent economic data from the US, including Nonfarm Payrolls (NFP) adding 142,000 jobs in August and a decrease in the Unemployment Rate to 4.2%, have added to the uncertainty over a Fed rate cut. Austan Goolsbee, Federal Reserve Bank of Chicago President, noted that a policy rate adjustment from the Fed is imminent, aligning with market sentiment. The ADP Employment Change and US Initial Jobless Claims data also showed mixed results, with private-sector employment increasing by 99,000 in August, below estimates.
Australia’s trade surplus expanded in July, exceeding expectations, while the US JOLTS Job Openings dropped to the lowest level since January 2021 in July. Bank of America (BoA) has revised its growth forecast for China, lowering projections for 2024 and 2025, while Australia’s Gross Domestic Product (GDP) posted a 0.2% increase in the second quarter. Technical analysis of the Australian Dollar against the US Dollar shows the AUD/USD pair testing support near the 50-day EMA level at 0.6676, with potential resistance at the nine-day EMA around 0.6720.
The Australian Dollar’s value is influenced by various factors, including interest rates set by the RBA, the price of its top export, Iron Ore, the health of the Chinese economy, inflation, growth rate, and Trade Balance in Australia, as well as overall market sentiment. The RBA’s interest rate decisions play a crucial role in supporting or weakening the AUD. China’s economic performance directly impacts the Australian Dollar due to the close trade relationship between the two countries, particularly through the demand for Australian exports.
Iron Ore is a significant export for Australia, and its price fluctuations can impact the value of the Australian Dollar. Higher Iron Ore prices generally lead to a stronger AUD, as increased demand for the currency follows an increase in the commodity’s price. The Trade Balance, reflecting the difference between exports and imports, also influences the Australian Dollar’s value. A positive balance strengthens the AUD, while a negative balance can weaken it.
In conclusion, the Australian Dollar’s recent resilience against the US Dollar is driven by the hawkish sentiment surrounding the RBA, despite softer inflation data from China. Economic indicators from both Australia and the US have added to market uncertainty, with the potential for a Fed rate cut and fluctuations in trade balances impacting the AUD’s value. Overall, various economic factors and market sentiment continue to play a significant role in shaping the Australian Dollar’s performance in the foreign exchange markets.
