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28 Oct 2024
Australian Dollar contiues weak and falls further below 0.6600
- AUD/USD extended its decline, but a soft US Dollar might help to limit losses.
- Lingering doubts over the effectiveness of China's stimulus measures weighed on AUD despite positive commodity prices.
- Market sentiment indicates a 50% chance of a 25-basis-point RBA rate cut by year-end.
The AUD/USD The AUD/USD pair extended its decline on Monday, falling by 0.31% to 0.6586. The pair broke below key support at 0.6600 and the critical 200-day SMA, suggesting further weakness ahead for the Aussie Dollar. Lingering doubts over the effectiveness of China's stimulus measures weighed on AUD despite positive commodity prices. A hawkish Reserve Bank of Australia (RBA) continues to support the Aussie in the background.
On the US side, markets await key data to be released this week. Markets will get a jobs reports as well as Gross Domestic Product (GDP) revisions. ISM PMI from October data is also due this week.
Daily digest market movers: Australian Dollar declines, markets await higher-tier data from the US
- Despite a subdued US Dollar, doubts over China's stimulus impacted the Australian Dollar.
- A possible USD correction and a hawkish RBA might help the Aussie.
- Deputy Governor Hauser warned against overestimating potential RBA rate cuts.
- On the US side, markets will get a Gross Domestic Product revision, Nonfarm Payrolls and ISM PMIs from October, which will help set the short-term direction for the pair.
AUD/USD technical outlook: Bears in control, RSI oversold and red MACD hint at a possible correction
The Relative Strength Index (RSI) has fallen into the oversold area, indicating that selling pressure is rising but that it might be over-extended. The Moving Average Convergence Divergence (MACD) histogram is red and rising, further suggesting that selling pressure is increasing.
The overall outlook is bearish, indicating that a downward trend is likely to continue in the near term but that a correction is possible. Support levels can be identified at 0.6570, 0.6550 and 0.6530, while resistance levels can be found at 0.6750, 0.6800 and 0.6850.
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.