AUD/USD Trading Trends
The AUD/USD pair has faced challenges in leveraging a rebound from the under-0.7100 levels reached the previous day, registering minimal movement in Asian trading on Friday. Still, it remains above the 0.7150 mark, and there’s a possibility it might see its first slight increase in three weeks.
The recent reports suggesting that the U.S. and Iran have drafted an agreement to extend the ongoing ceasefire for another 60 days have reinforced the U.S. dollar’s (USD) status as a safe haven, which could benefit the AUD/USD pairing. Yet, there’s a sense of skepticism among investors regarding the likelihood of a genuine peace agreement, especially given the ongoing disputes over Iran’s nuclear ambitions and issues related to the Strait of Hormuz.
Additionally, U.S. inflation surged at its highest rate in three years in April, igniting expectations that the Federal Reserve might raise interest rates before the year ends. This news is another supportive factor for the dollar. Concurrently, there appears to be diminishing expectations for a rate climb by the Reserve Bank of Australia (RBA) in June, adding further restraint on the AUD/USD pair.
From a technical viewpoint, prices are still maneuvering within established trading bands that have persisted for the past weeks. The top range aligns with the 100-period simple moving average (SMA) shown on the 4-hour chart, along with the 23.6% Fibonacci retracement level from the recent March-May AUD/USD rally. This suggests that while there’s a positive trend, the overall movement is somewhat limited.
The relative strength index hovers around 56, and the slightly favorable Moving Average Convergence Divergence (MACD) reading implies that sellers don’t have complete control. To reverse the recent downward momentum from long-term highs, the AUD/USD needs to break above the noted confluence area around 0.7180-0.7185.
Successfully overcoming this range could potentially lead to a swing high of 0.7279. On the flip side, immediate support lies at the 38.2% Fibonacci retracement level near 0.7109, followed by a 50.0% retracement at 0.7056, then possibly a deeper dip to 0.7003, and further down to 0.6928 and a broader base at 0.6833.
AUD/USD 4-hour chart
Common Questions about the Australian Dollar
One key determinant of the Australian dollar’s (AUD) value is the interest rate set by the Reserve Bank of Australia (RBA). Since Australia is rich in resources, the price of its chief export—iron ore—also plays a big role. Factors influencing this include inflation, growth rates, trade balances, and the overall state of the Chinese economy, which is Australia’s largest trading partner. Market sentiment can sway the dollar too; when investors lean towards riskier assets, it typically benefits the AUD.
The RBA influences the AUD by managing the interest rates at which banks can lend to each other, impacting overall economic interest rates. Its main objective is to keep inflation stable at 2-3%. The AUD generally fares better when interest rates are higher compared to those of other major central banks. Moreover, the RBA can employ quantitative easing or tightening to manipulate credit conditions; easing tends to weaken the AUD, while tightening often supports it.
As the largest trading partner, China’s economy heavily influences the AUD. A strong Chinese economy leads to increased demand for Australian exports, raising the AUD’s value. Conversely, if China’s economic growth falters, the AUD typically follows suit. Thus, fluctuations in China’s growth data often have direct effects on the AUD.
Iron ore, accounting for $118 billion in exports annually as of 2021, is vital for Australia’s economy. Rising iron ore prices generally bolster the AUD due to increased demand for the currency. On the other hand, falling iron ore prices can diminish its value. When iron ore prices climb, it tends to improve Australia’s trade balance, positively affecting the AUD.
The trade balance, representing the difference between export earnings and import expenses, is also crucial for the AUD’s value. If Australia achieves a surplus from highly desirable exports, it can elevate the currency’s value, while a negative balance adversely impacts it.
