Bulls maintain control near the four-week high and expect a rise above 0.6700
- AUD/USD rises for the third day in a row, hitting a new multi-week high on Monday.
- Bets on a Fed rate cut and the RBA’s hawkish stance continue to support the sharp rise.
- The technical configuration favors bullish traders and supports the prospects of further upside.
The AUD/USD pair is holding on to its intraday gains at the start of the European session and is currently trading around the 0.6685 level, up over 0.25% on the day.
Expectations that the Federal Reserve (Fed) will begin its rate-cutting cycle in September are pushing the US dollar (USD) to its lowest level since January. This, along with the hawkish stance of the Reserve Bank of Australia (RBA), is proving to be a key factor in giving the AUD/USD pair a tailwind for the third day in a row.
Meanwhile, technical indicators on the daily chart are comfortably holding in the positive territory and are still far from being in the overbought zone. This, coupled with the recent break through the 200-day SMA, suggests that the path of least resistance for the AUD/USD pair is to the upside.
However, bulls will need to wait for follow-through buying beyond the 0.6700 level before positioning themselves for an extension of the recovery from the 0.6520-0.6515 range or the yearly low reached earlier this month. The AUD/USD pair could then climb to the intermediate hurdle of 0.6745 before aiming to conquer the 0.6800 level.
On the downside, the Asian session low around the 0.6650 area is likely to act as an immediate support ahead of the 0.6600 level or the 200-day SMA resistance breakpoint. The latter should now act as a strong base which, if broken, could trigger aggressive technical selling around the AUD/USD pair and result in deeper losses.
The next relevant support is near the 0.6565 area, below which the decline could continue towards the 0.6520-0.6510 region. Some follow-up selling below the psychological level of 0.6500 suggests that the uptrend of the last two weeks has lost momentum and the bias is shifting in favor of pessimistic traders.
AUD/USD daily chart
Frequently asked questions about the Australian dollar
One of the most important factors for the Australian dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). As Australia is a resource-rich country, another important factor is the price of its main export commodity, iron ore. The health of the Chinese economy, its largest trading partner, is a factor, as is inflation in Australia, its growth rate and its trade balance. Market sentiment – whether investors are looking to take on riskier assets (risk appetite) or seek safe havens (risk aversion) – is also a factor, with risk appetite having a positive impact on the AUD.
The Reserve Bank of Australia (RBA) influences the Australian dollar (AUD) by setting the interest rate level at which Australian banks can lend money to each other. This influences interest rate levels across the economy. The RBA’s main objective 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, while relatively low interest rates do the opposite. The RBA can also use quantitative easing and tightening to influence credit conditions, the former being AUD negative and the latter being AUD positive.
China is Australia’s largest trading partner, so the health of the Chinese economy has a major impact on the value of the Australian dollar (AUD). When the Chinese economy is doing well, it buys more commodities, goods and services from Australia, which increases demand for the AUD and boosts its value. The opposite is true 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 currency pairs.
Iron ore is Australia’s largest export, accounting for $118 billion per year according to 2021 data, with China being the top destination. The price of iron ore can therefore be a driver for the Australian dollar. Generally, when the price of iron ore rises, the AUD also rises as overall demand for the currency increases. The opposite is true when the price of iron ore falls. Higher iron ore prices also tend to lead to a greater likelihood of a positive trade balance for Australia, which also has a positive impact on the AUD.
The trade balance, the difference between a country’s export earnings and its import expenditure, is another factor that can affect the value of the Australian dollar. If Australia produces export goods that are in high demand, its currency will appreciate simply from the excess demand from foreign buyers who want to buy its exports compared to the country’s import expenditure. Therefore, a positive net trade balance strengthens the AUD, while a negative trade balance has the opposite effect.
