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5 Dec 2024
Australian Dollar struggles amid weak GDP data and RBA dovish outlook
- AUD/USD holds near four-month lows near 0.6400, pressured by disappointing Q3 GDP figures in Australia.
- The RBA’s dovish expectations gain traction, with markets now anticipating rate cuts starting in April 2025.
- Technical indicators signal persistent bearish momentum with the pair holding near critical support at 0.6400.
The AUD/USD holds around 0.6435 on Thursday as the Aussie loses interest amid a backdrop of weak Australian fundamentals. Quarterly GDP growth in Australia underwhelmed traders, fueling speculation that the Reserve Bank of Australia (RBA) may commence rate cuts as early as April 2025.
On the US side, the USD is also trading the red, mainly due to soft labor market data ahead of Friday’s Nonfarm Payrolls (NFP) figures from November.
Daily digest market movers: Aussie continues weak dynamic as investors digest GDP data
- Australia's Q3 GDP expanded by just 0.3% QoQ, falling short of the 0.4% forecast.
- Annual GDP growth slowed to 0.8%, well below the estimated 1%.
- The soft GDP print has shifted expectations for RBA rate cuts forward to April 2025, earlier than previous market consensus for May.
- On the US side, Federal Reserve Chair Jerome Powell emphasized the central bank's cautious approach to neutral rates amidst signs of economic resilience.
- Weekly Initial Jobless Claims surged to 224,000, surpassing both the previous week's figure of 213,000 and forecasts of 215,000.
- November Challenger Job Cuts also increased to 57,727, signaling a growing trend in layoffs.
- November’s NFPs will be key on Friday as it might trigger a recovery for the pair.
AUD/USD technical outlook: Bears maintain control as bearish momentum lingers
The AUD/USD pair remains entrenched in a bearish trajectory with technical indicators pointing to continued downside potential.
The daily Relative Strength Index (RSI) remains deep in negative territory, nearing the oversold zone, signaling strong selling momentum. The Moving Average Convergence Divergence (MACD) is firmly below the signal line, reinforcing the prevailing bearish bias. The pair is holding near the critical 0.6400 level, a break of which could open the door for further declines. Any recovery attempts may face stiff resistance at 0.6500, with stronger barriers near 0.6550.
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.