- In early Asian trading on Friday, AUD/USD weakened to around 0.6215.
- President Trump's policies continue to support the US dollar as Fed bets on interest rate cuts decline.
- RBA minutes revealed that the board has increased confidence in inflation, but risks remain.
Early in Friday's Asian session, the AUD/USD pair remained defensive around 0.6215. The incoming Donald Trump administration is expected to boost growth and lift inflation, supporting the US dollar (USD). The market is likely to be quiet ahead of next week's New Year holiday.
The US Federal Reserve (Fed) last week decided to cut interest rates by 25 basis points (bps) as expected, and Fed Chairman Jerome Powell said further interest rate cuts would mean further declines in the persistently high inflation rate. He said it depends on what happens. In addition, analysts say President Trump's potential new tariffs on trading partners could increase price pressures and slow the pace of rate cuts by the US central bank, which supports the dollar's weakness against the Australian dollar (AUD). I expect there will be.
New jobless claims in the U.S. fell to 219,000 in the week ending Dec. 21, according to data released Thursday by the U.S. Department of Labor (DOL). This number follows last week's 220,000 and was below the market consensus of 224,000.
As for Australia, the latest Reserve Bank of Australia (RBA) monetary policy minutes suggest the central bank is more confident that inflation is sustainably on track to target. I am doing it. Nevertheless, it is premature to conclude that the battle has been won due to the recent pick-up in household spending and tightening of the labor market. Analysts expect the RBA to begin cutting rates in a shallow easing cycle by the second quarter of 2025.
Australian Dollar Frequently Asked Questions
One of the most important factors for the Australian dollar (AUD) is the interest rate level set by the Reserve Bank of Australia (RBA). Australia is a resource-rich country, so another important factor is the price of its largest export, iron ore, which is Australia's largest trading partner, as well as its inflation, growth rate and trade. The health of China's economy is also a factor. balance. Market sentiment is also a factor, with investors taking on riskier assets (risk-on) or seeking safer assets (risk-off), with risk-on being positive for the Australian dollar.
The Reserve Bank of Australia (RBA) influences the Australian dollar (AUD) by setting the level of interest rates at which Australian banks can lend to each other. This affects the level of interest rates throughout the economy. The RBA's main goal is to maintain a stable inflation rate of 2-3% by adjusting interest rates up and down. The Australian dollar is supported by relatively high interest rates compared to other major central banks, and conversely by relatively low interest rates. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former being AUD-negative and the latter AUD-positive.
China is Australia's largest trading partner, so the health of the Chinese economy has a significant impact on the value of the Australian dollar (AUD). When China's economy does well, China buys more raw materials, goods and services from Australia, increasing demand for the Australian dollar and boosting its value. The opposite is true if China's economy is not growing as fast as expected. Therefore, positive or negative surprises in China's growth data often directly impact the Australian dollar and its pairs.
Iron ore is Australia's largest export, accounting for $118 billion annually, according to 2021 data, with China the main destination. Therefore, iron ore prices could be a driver for the Australian dollar. Generally, when the price of iron ore rises, the Australian dollar also rises because aggregate demand for the currency increases. The opposite is true if the price of iron ore falls. Higher iron ore prices tend to increase the likelihood of Australia's trade balance being positive, which is also positive for the Australian dollar.
The balance of trade is the difference between what a country earns from exports and what it pays for imports, and is another factor that can affect the value of the Australian dollar. If Australia produces a highly sought-after export, the country's currency will be deducted from just the surplus demand generated from foreign buyers seeking to buy that export, compared to the amount spent on purchasing the import. value increases. Therefore, a positive net trade balance will cause the Australian dollar to appreciate, while a negative trade balance will have the opposite effect.
