The Australian Dollar Weakens Amid Economic Concerns
- The Australian Dollar softens in Thursday’s early European session.
- Slower-than-expected Australian Q3 GDP and heightened expectations of RBA’s dovish stance exert some selling pressure on the Aussie.
- The US weekly Initial Jobless Claims and Goods Trade Balance are due later on Thursday.
The Australian Dollar (AUD) is facing selling pressure this Thursday as disappointing economic data from Australia raises concerns. Expectations are building for an interest rate cut from the Reserve Bank of Australia (RBA), further pressuring the Aussie. Additionally, potential tariff discussions from President-elect Donald Trump could negatively affect the currency.
Market participants are keeping an eye on the upcoming US weekly Initial Jobless Claims and Goods Trade Balance reports for further market direction. If US labor market data appears weaker than expected, it may provide some support for the AUD. The focus will also be on the US Nonfarm Payrolls (NFP) report set for Friday.
Australian Dollar’s Negative Sentiment Driven by Economic Indicators
- Australia’s trade surplus rose to 5,953M MoM in October, up from 4,532M in September, exceeding forecasts.
- Q3 GDP growth was reported at 0.3% QoQ, slightly below expectations of 0.4%.
- Australia’s Judo Bank Services PMI improved to 50.5 in November, outperforming estimates.
- US ISM Services PMI decreased to 52.1 in November, missing predictions.
- The US S&P Global Composite PMI also weakened, indicating softer economic activity.
- Fed Chair Jerome Powell stated the US economy is stronger than previously anticipated, suggesting a potential slowdown on interest rate cuts.
- CME FedWatch Tool indicates a 77.5% probability of a quarter-point rate cut from the Fed in December.
Bearish Outlook for AUD/USD Continues
The Australian Dollar exhibits a bearish outlook against the US Dollar, maintaining its position below the 100-day Exponential Moving Average (EMA) on the daily chart. The 14-day Relative Strength Index (RSI) remains under the critical midline at 37.70, reinforcing downward momentum.
A sustained drop below 0.6325 could invite more selling towards 0.6285, the recent low from October 3. Further declines may push the pair down to the significant psychological level at 0.6200. Conversely, if prices rise above 0.6512, the upper trend channel limit, a rally towards 0.6626 and potentially to 0.6687, the November 7 high, may occur.
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 favoring risky assets or seeking safe havens—also influences the AUD, with risk-on scenarios being positive for the currency.
The Reserve Bank of Australia (RBA) influences the AUD by setting interest rates that Australian banks use to lend to one another. This decision impacts interest rates across the economy. The RBA aims to maintain stable inflation (2-3%) through adjustments in interest rates. Higher interest rates compared to other nations typically support the AUD, while lower rates do the opposite. The RBA can also use quantitative easing and tightening to affect credit conditions.
China is Australia’s largest trading partner; thus, the health of China’s economy significantly affects the AUD’s value. A booming Chinese economy increases its demand for Australian goods, boosting the AUD’s value. Conversely, slower growth in China tends to lower demand, negatively impacting the currency.
Iron Ore is Australia’s largest export, generating approximately $118 billion annually, mainly to China. Consequently, Iron Ore prices greatly influence the AUD’s value. An increase in Iron Ore prices typically results in a stronger AUD, while price declines have the opposite effect, often correlating with Australia’s Trade Balance.
The Trade Balance, or the difference between a country’s exports and imports, is crucial in shaping the AUD’s value. A trade surplus boosts the currency’s value due to heightened foreign demand for Australia’s exports, while a trade deficit may weaken it.
