- Rising commodity prices are benefiting the Aussie.
- Weak Australia Q2 capex survey weighs on AUD and may limit its gains.
- Technicals suggest further AUD/USD upside is possible.
The AUD/USD rose by 0.30% to 0.6810 in Thursday’s session. The Aussie has been supported by rising commodity prices, particularly iron ore, which is Australia’s largest export. However, a weak Q2 capex survey and continued weakness in non-mining business investment might weigh on the currency. Despite these headwinds, technicals suggest that further AUD/USD upside is possible.
Amidst the ambiguous Australian economic outlook and the central bank’s firm stance against high inflation, financial markets anticipate a modest easing of interest rates by only 0.25% in 2024.
Daily digest market movers: Australian Dollar gains despite weak investment data
- Business investment in Australia contracted for the second consecutive quarter in Q2, underscoring the challenges facing the domestic economy.
- Non-mining business spending recorded its first quarterly decline in three years, reflecting lower capex on building structures, plants and equipment.
- Weak capex survey adds to the view that the Reserve Bank of Australia (RBA) will likely cut interest rates by year-end as the central bank seeks to stimulate growth.
- On the positive side, monetary policy divergence might favor the AUD over its major counterparts.
AUD/USD technical outlook: Bullish momentum steady, buyers must secure 0.6800
Indicators are smiling on the pair. The Moving Average Convergence Divergence (MACD) is printing green bars, indicating that further gains are possible. The Relative Strength Index (RSI) also backs this up as it remains deep in positive terrain with some room before the overbought threshold.
The pair is facing resistance at 0.6800 and 0.6830, while support can be expected at 0.6790 and 0.6770.
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.
Source: https://www.fxstreet.com/news/australian-dollar-strengthens-amidst-rising-commodity-prices-shrugs-off-weak-data-202408292038